One-Day Audit Training

CSP Audit Training

St. Paul, Minnesota

July 19, 2007

Tentative Agenda 8:30 - 8:45 Welcome 8:45 - 9:30 Background of SST - Scott Peterson, Executive Director 9:30 - 10:30 Overview of Certification Process for CSPs - Gary Centilvre and David Thompson 10:30 - 10:45 Break 10:45 - 12:00 Overview of CSP Operations - Taxware and Avalara 1:00 - 1:30 Overview of Compliance Audit Process 1:30 - 2:30 Audit Core Team's Responsibilities, Procedures & Deadlines 2:30 - 2:45 Break 2:45 - 4:00 Member State Auditor Responsibilities, Procedures & Deadlines 4:00 - 4:30 Questions 4:30 Closing The following is the hotel information for St. Paul. The rates are as of May 30: Embassy Suites Hotel, 175 E. 10th St., Saint Paul, 651-224-5400 or 800-362-2779 (No Government rate available) $159 per night + tax Crown Plaza Riverfront, 11 East Kellogg Boulevard, St. Paul, 651-292-1900 or 800-Holiday (No Government rate available) $199 per night + tax; ARRP $156 per night + tax Holiday Inn River Centre, 175 W. 7th St., St. Paul, 651-225-1515 Government rate: $113 per night + tax City Center Hotel- St Paul, 411 Minnesota St, St Paul, MN 55101, (651) 291-8800, (866) 781-8800 (No Government rate available) $159 per night + tax Country Inn & Suites by Carlson-Roseville, 2905 Snelling Ave N St Paul, MN 55113, (651) 628-3500 Government rate: $103.55 per night + tax Country Inn By Carlson, 6003 Hudson Rd, Woodbury, MN 55125, (651) 739-7300; 800-456-4000 Government rate: $60 per night + tax Radisson Hotels & Resorts: Radisson Hotel Roseville, 2540 Cleveland Ave N, Roseville, MN 55113, (651) 636-4567

Government rate: $133.00 per night + tax Courtyard by Marriott, 1352 Northland Dr, Mendota Heights, MN 55120, (651) 452-2000 Government rate: $80.00 per night + tax Courtyard by Marriott: Roseville, 2905 Centre Pointe Dr, St Paul, MN 55113, (651) 746-8000; 800-321-2211 Government rate: $113.00 per night + tax Holiday Inn-ST. PAUL-I-94-EAST (3M AREA), 2201 BURNS AVE., ST. PAUL, 651-7312220; 800-Holiday Government rate: $95.00 per night + tax

http://www.ichotelsgroup.com/h/d/hi/1/en/hotel/mspea/transportation

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Certified Service ProvidersAudit Training WorkshopJuly 19, 2007

Scott PetersonExecutive Director

Streamline Sales Tax Governing Board

Certified Service ProvidersAudit Training Workshop

Purpose of training:– Explain what is a CSP and CAS.– Introduce you to them.– Explain the CSP contract.– Explain the CSP certification process.– Have the CSP’s explain their systems.

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What is SST?

A government/business effort to simplify sales and use tax administration.Two areas of emphasis:

– Current collectors– Remote sellers

Why– Business need to have simpler system.– States need to maintain a viable tax structure.

How– 44 states, local governments and hundreds of businesses

working together.

Why a Simplified Sales Tax System is Why a Simplified Sales Tax System is Important to GovernmentImportant to Government

Simpler administration of tax.Improved compliance from existing taxpayers.Possible increase in available audit hours.Addresses the collection of remote sales.

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Why a Simplified Sales Tax System is Why a Simplified Sales Tax System is Important to BusinessImportant to Business

Reduces cost of compliance.Improves compliance.Reduces audit burden.Addresses multistate issues.

New Technology To Simplify

Central registration system.Database matching rate to local jurisdiction.Database of boundary information.Taxability matrix.Certified technology for sellers.

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Certified Technology

Two versions:Certified service providers.Certified automated systems.

SST used RFP to seek software companies.States evaluated software that assists sellers in their sales tax administrative responsibility.

Certified Technology -Certified Service Providers

A third party to whom a seller can out-source their sales tax administrative responsibility.The third party:

– Knows what products and services are taxable.– Where they are taxable.– The rate at which they are taxed.– Populates the seller’s accounting software.– Compiles the information into a complete tax return.– Files the tax return and remits the tax.

The third party is liable for errors in the integration of the system.

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Under contract with the Governing Board.Contract expires June 2007.SCOPE OF SERVICES: “Except as otherwise provided in this section, the Contractor agrees to and shall perform all of the sales and use tax functions of each Seller with whom it contracts as a CSP, other than such Seller’s obligation to remit tax on its own purchases, for each Member State and Associate Member State in which the Seller is registered to collect sales and use tax.”


Use an Automated System.Integrate the Automated System with the system of a Seller.File tax returns and informational returns as provided for in Section 318 of the SSUTA on behalf of each Seller.Protect the privacy of tax information it obtains.Maintain compliance with the provisions of the Minimum Standards for Certification document.

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State compensated when providing service to volunteers.Compensation rates are based upon the volume of Taxes Due from each Volunteer Seller with whom the Contractor agrees to provide services as a CSP.Compensation ranges from 8% of taxes due to 2% of taxes due.Rates of compensation shall reset annually for services performed on behalf of each Volunteer Seller.The Contractor shall provide electronic reports to the ExecutiveCommittee on a quarterly basis that explain how the Contractor's compensation was calculated.


Each State shall, pursuant to the terms of SSUTA Sections 306 and 328, relieve the Contractor, and any Seller registered under theSSUTA with which the latter contracts, from liability to the states and their local jurisdictions for having charged and collected the incorrect amount of sales or use tax resulting from the Contractor or any of its SSUTA-registered contracting Sellers relying on erroneous data on tax rates, boundaries, or taxing jurisdiction assignments which have been listed in the state’s rates and boundaries databases, and erroneous data provided in the taxability matrix provided by the Member State or Associate Member State pursuant to Section 328.In accordance with SSUTA, each State shall review and certify that the Automated System utilized by the Contractor determines accurately whether or not a category of items or transactions listed in theAutomated System is exempt from tax in accordance with each state’s law.

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The Contractor shall have ten (10) days from the date of notification by a State to revise the Automated System to conform with changes to: the tax rates, boundaries, or taxing jurisdiction assignments which have been listed in the state’s rates and boundaries databases; the taxability matrix provided by the State pursuant to Section 328 of the SSUTA; and the classification of the taxability of a category of items or transactions pursuant to Section 502 of the SSUTA. In the event the Contractor fails to make such changes, beginning on the eleventh day after notification the Contractor shall be liable for failure to collect the correct amount of Seller Taxes owed to the State, plus any additional charges or amounts that the laws of the State impose for the nonpayment of sales and use taxes, and shall be in Breach of this Contract.


The Governing Board, Member States and Associate Member States are not responsible for mapping, which is defined as classification of an item or transaction within a certified category. The Contractor is liable for mapping errors resultingin failure to collect the correct amount of Seller Taxes owed tothe Member State or Associate Member State, plus any additional charges or amounts that the laws of the Member State or Associate Member State impose for the nonpayment of sales and use taxes. Nothing herein shall prohibit the Contractor from providing, in its contracts with Sellers, for indemnification from Sellers to reimburse the Contractor for liability resulting from mapping errors to the extent that such errors are due to the actions or inactions of a Seller.

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The Contractor shall not be liable for the failure to remit Seller Taxes when due, … to the extent that (a) the laws of a State relieve the Contractor or the Seller from liability to the state and its local jurisdictions for having remitted the incorrect amount of sales or use tax and (b) the incorrect amount resulted from the Contractor’s reasonable reliance on an issue made available for review but not discovered in the certification process. If both (a) and (b) are satisfied, the Contractor’s sole obligation and liability for such unpaid taxes shall be to correct the issue within a reasonable amount of time (not to exceed ten (10) days unless an extension is granted by the Executive Committee) from receipt of the State’s notice of the incorrect amounts. In the event the Contractor is unable to correct the issue causing the incorrect amounts to be charged and collected, beginning on the first day after the time allotted in the previous sentence the Contractor shall be liable for failure to collect the correct amount of Seller Taxes owed to the State, … and shall be in Breach of this Contract.

Certified Technology -Certified Automated Systems

A third party to whom a seller can out-source their sales tax determinations.The third party:

– Knows what products and services are taxable.– Where they are taxable.– The rate at which they are taxed.– Populates the seller’s accounting software.

The seller remains liable for filing tax returns and payment of the tax.The seller is liable for errors that occur in the integration of the certified system into their own system.

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Certified Technology -Certified Automated Systems

Under contract with the Governing Board.Contract expires June 2007.

Certified Service Providers

QUESTIONS

Contact Information:Scott PetersonExecutive DirectorStreamlined Sales Tax Governing Board615-460-9330Scott.Peterson@sstgb.orgwww.streamlinedsalestax.org

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Streamlined Sales TaxStreamlined Sales TaxCertification CommitteeCertification Committee

andandTesting CentralTesting Central

OverviewOverview

July 19, 2007July 19, 2007

Streamlined Sales TaxStreamlined Sales Tax

CSP Evaluation CommitteeCSP Evaluation CommitteeEvaluation and CertificationEvaluation and CertificationFormalizing the ProcessFormalizing the ProcessCertification CommitteeCertification CommitteeTesting CentralTesting CentralChange Control AdministrationChange Control AdministrationFTP SiteFTP Site

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CSP Evaluation CommitteeCSP Evaluation CommitteeFormulate certification processCreate documentationDetermine minimum requirementsEvaluate RFP responsesEstablish criteria for certificationConduct security assessments and site inspections of potential CSP’s Establish test proceduresManage testing processMake recommendations to Governing Board

Certification TimelineCertification TimelineRFP issued November ‘04CSP Eval Committee formed - February ’05Review of RFP responses – March ‘05 Seven companies selected for evaluation – April ‘05System testing begins with three service providers -October ‘05Tentative Awards/Contract/Cost negotiations –April/May ‘06Final Contract Award to Certified Service Providers –June 2006

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Certified Service ProviderCertified Service Provider

“An agent certified under the Agreement to perform all of the seller’s sales and use tax functions, other than the seller’s obligation to remit tax on its own purchases.”

(sec.203, SSUTA)

Certified Service ProviderCertified Service Provider

A third party that provides a sales tax administration system that is certified by the member States of the SSUTA.

Determines what is taxable and what is exemptSources the sale and calculates the correct taxReports and remits to the correct jurisdictionProtects privacy of taxpayer information

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CSP Requirements CSP Requirements (source: RFP11/01/04)(source: RFP11/01/04)

Uniform SourcingExemption ProcessingUniform RoundingRate and Boundary ChangesTax Collection Procedures

Liability ReliefTax Remittance ProceduresRecord Retention ProceduresAudit RequirementsTax Privacy

Evaluation Criteria CategoriesEvaluation Criteria Categories(Compiled from SSUTA, RFP and Certification Standards)(Compiled from SSUTA, RFP and Certification Standards)

Background and experienceFinancial soundnessProject staffing and organizationTechnical ApproachCertification Standards - General ControlsApplication ControlsSystem Modification Accuracy

Sufficiency of informationTransaction Speed and Data SecurityPrivacy Standards and Data ProtectionElectronic format capabilities and sampling procedures Cost proposalExecution of proposal

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Acceptance RequirementsAcceptance Requirements

Execute test decks successfullyExecute test decks successfullySuccessfully test single entry screenSuccessfully test single entry screenSuccessfully complete endSuccessfully complete end--toto--end testingend testingApproval of tax rulesApproval of tax rulesActivity report capabilitiesActivity report capabilitiesFinancial soundness assessmentFinancial soundness assessmentAll other requirements of SSUTA All other requirements of SSUTA (sec. 501B)(sec. 501B)

and Certification Standardsand Certification Standards

Article V Article V –– Provider and System Provider and System CertificationCertification

Article V of the Rules and Procedures of the Article V of the Rules and Procedures of the SST Governing Board, Inc. adopted in April SST Governing Board, Inc. adopted in April ’’0606Rule 501, Article V formalized the Certification Rule 501, Article V formalized the Certification processprocessRules 501.2Rules 501.2--501.4 Certification and acceptance 501.4 Certification and acceptance requirements for service providers, requirements for service providers, Recertification processRecertification processRules 501.5Rules 501.5--501.6 Certification and acceptance 501.6 Certification and acceptance requirements for automated systemsrequirements for automated systems

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Appendices to Article VAppendices to Article V‘‘AA’’ Timeline and CertTimeline and Cert

Process FlowProcess Flow‘‘BB’’ Initial timeline andInitial timeline and

Cert Process FlowCert Process Flow‘‘CC’’ Criteria for CSPCriteria for CSP

Eval (min. standards)Eval (min. standards)‘‘DD’’ RFP Criteria forRFP Criteria for

EvaluationEvaluation‘‘EE’’ Testing Process forTesting Process for

Certification of ServiceCertification of ServiceProviders Providers

‘‘FF’’ FTP Site AdministrationFTP Site Administration‘‘GG’’ Certification StandardsCertification Standards‘‘HH’’ Recertification ProcessRecertification Process‘‘II’’ Recertification TimelineRecertification Timeline

and Process Flowand Process Flow‘‘JJ’’ Model 2 AutomatedModel 2 Automated

System CertificationSystem CertificationProcess FlowProcess Flow

‘‘KK’’ Testing Process forTesting Process forCertification of Model 2Certification of Model 2Automated SystemsAutomated Systems

Certification CommitteeCertification Committee

Rule 501.7, Article V establishes SST Rule 501.7, Article V establishes SST Certification CommitteeCertification Committee

Certification Committee advises the Governing Board on Certification Committee advises the Governing Board on matters pertaining to the evaluation, testing, certification matters pertaining to the evaluation, testing, certification and recertification of service providers and automated and recertification of service providers and automated systems. The Committee will consider and respond to systems. The Committee will consider and respond to those matters referred to it from the Governing Board or those matters referred to it from the Governing Board or its committees regarding evaluation, testing, certification its committees regarding evaluation, testing, certification or recertification. The Committee may also recommend or recertification. The Committee may also recommend items to the Governing Board for consideration. items to the Governing Board for consideration.

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Testing CentralTesting Central

Rule 501.8, Article V establishes Rule 501.8, Article V establishes Testing CentralTesting Central

An administrative process to manage and document An administrative process to manage and document communication between member states, Certified communication between member states, Certified Service Providers, Certified Service Provider candidates, Service Providers, Certified Service Provider candidates, Certified Automated System providers and/or Certified Certified Automated System providers and/or Certified Automated System applicants regarding testing and Automated System applicants regarding testing and changes.changes.


Presented byPresented byDavid ThompsonDavid Thompson

IT Director, SSTGB Inc.IT Director, SSTGB [email protected]@SSTGB.org

931931--387387--22802280

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Testing Central developed by the Testing Central developed by the Certification Committee in 2006Certification Committee in 2006

First maintained by Kansas and First maintained by Kansas and TennesseeTennessee

Currently maintained by Streamlined Sales Currently maintained by Streamlined Sales Tax Governing Board Inc.Tax Governing Board Inc.

Testing Central ResponsibilitiesTesting Central Responsibilities

Maintain historical data regarding system Maintain historical data regarding system changes changes

Monitor necessary system changes and testing Monitor necessary system changes and testing

Notify states of completed changes and the date Notify states of completed changes and the date of production of production

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Testing Central ResponsibilitiesTesting Central Responsibilities

Monitor testing time of member states Monitor testing time of member states

Provide reports upon request of outstanding and Provide reports upon request of outstanding and completed system changes completed system changes

Maintain system to capture complete change Maintain system to capture complete change data data

TESTING CENTRAL FORMSTESTING CENTRAL FORMS

State Change Request State Change Request –– Form TC0001Form TC0001Completed by States to indicate problems or Completed by States to indicate problems or a necessary change in a CSP systema necessary change in a CSP system

CSP/CAS Change Request CSP/CAS Change Request –– Form Form TC0005TC0005

Completed by CSP/CAS to notify state of Completed by CSP/CAS to notify state of system changes or problemssystem changes or problems

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State Notice of R&B Change State Notice of R&B Change –– Form TC0006 (Optional)Form TC0006 (Optional)Completed by States to allow Testing Central to notify CSP/CAS Completed by States to allow Testing Central to notify CSP/CAS of changes in the Rates and/or Boundary filesof changes in the Rates and/or Boundary files

Allowance Indicator Form Allowance Indicator Form –– F0004F0004Completed by CSP/CAS to allow Testing Central to indicate Completed by CSP/CAS to allow Testing Central to indicate which states will pay CSP/CAS compensationwhich states will pay CSP/CAS compensation

Changes LogChanges LogExcel spreadsheet maintained to list all change requests, dates,Excel spreadsheet maintained to list all change requests, dates,actions and commentsactions and comments

FTA SiteFTA Site

FTP Site StructureFTP Site Structure

FTP Site Access:FTP Site Access:

User ID and Password sent to each state, CSP and Core Team User ID and Password sent to each state, CSP and Core Team

FTP Site LocationFTP Site Location

http://http://sstgbinc.ftptoday.comsstgbinc.ftptoday.com

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David ThompsonDavid [email protected]@SSTGB.org

931931--387387--22802280

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Audit Core TeamResponsibilities

ProceduresDeadlines

Presented by Bob Muller, Steve Krovitz, Roger Wright, and Toni Webster

I (we) need two volunteers

Volunteer #1Why do we care? We don’t understand!

Volunteer #2It’s getting late, take a look at your watch!

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Audit Core TeamWhat is this??

The Audit Core Team is defined within Rule 806.3 –Administration of Compliance Audit Process of

Streamlined Sales Tax Rules and Procedures

Defined Per Rule

• Rule 806.3.1(C) – AuthorityThe Streamlined Sales Tax Governing Board designates the Audit Core Team to perform contract compliance audits for member states and to coordinate the tax compliance audits of Model 1 sellers as authorized by the Governing Board.

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Defined Per Rule

• Rule 806.3.2(D) – Audit Core TeamThe Audit Core Team is a group of designated representatives from full member states who are responsible for coordinating compliance audits, performing contract compliance audits and compiling feedback reports for the Governing Board.

Defined Per Rule

• Rule 806.3.4(B) – Audit Core Team -Reporting Relationship

The Audit Core Team will report to the Streamlined Sales Tax Governing Board Executive Director or its designee for audit assignments, guidance and support.

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Who is the Core Team

Steve KrovitzMinnesota Department

Of Revenue

Toni WebsterOklahoma TaxCommission

Who is the Core Team

Roger WrightWest Virginia Dept.Of Tax & Revenue

Bob MullerIndiana Department

Of Revenue

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Does everyone understand the

Core Team concept?

Simply Stated -What We Do:• The Audit Core Team will complete a

contract compliance audit of all active Certified Service Providers (CSPs).

What You Do:• The Member and Associate Member State

Auditors will complete the tax compliance audit on sales transactions processed by the active CSPs.

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The SST Rules Defines the Compliance Audit Process

• Rule 806.3.5 – Compliance Audit of a CSPA. The Compliance Audit of a CSP and its Model 1 sellers will include a contract compliance audit of the CSP and tax compliance audits of Model 1 sellers’ transactions processed through the CSP’s system.

B. The contract compliance audit of the CSP will be performed by the Audit Core Team. The tax compliance audits of the Model 1 sellers will be performed by member states under the coordination of the Audit Core Team.

Clear as Day!(Right!!!!)

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The Audit Core Team:• Will evaluate all pertinent elements of the

current contract between the CSPs and the Streamlined Sales Tax Governing Board and assess each CSP’s compliance with the terms of the contract.

• As part of this contract compliance audit, they will audit areas where they are in the unique position to review. Then advise the Member and Associate Member State Auditors if problems exist that would impact the tax compliance audits.

• Will perform tax compliance audits on sales transactions of Model 1 sellers processed by the CSPs.

• As part of the CSP compliance audit process, they will report audit exceptions to the Audit Core Team.

The Member and Associate Member State Auditors:

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When the rubber hits the road, it may be a little bumpy from time to time. Why….?

Because

• This type of audit has never been done before.

• Theory does not always equal practice.• Sometimes the road to knowledge can be

full of potholes.

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-Solution-The Core Team will:• work hard• attempt to communicate effectively with everyone• be flexible in our approaches • keep the goal in focus

-Goal-

To complete a timely, accurate, and professional audit that meets the needs and expectations of the Streamlined Sales Tax Governing Board.

The Core Team will provide the State Auditors with two reports.• A preliminary report of findings will be

issued to the state auditors in later part of October 2007. This report will include any audit results discovered by the Core Team that could be relevant to the tax compliance audits.

• The final contract compliance audit will be given to each Member and Associate Member State in March of 2008.

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Audit Core TeamResponsibilities

Rule 806.3.4(D)(1)The Audit Core Team is responsible for performing contract compliance audits and coordinating tax compliance audits

with member states.

Rule 806.3.4(D)(2)Outlines ten (10) specific tasks the Audit Core Team is responsible for

completing.

Rule 806.3.4(D)(2)(i)

The Audit Core Team will:Create a uniform audit plan with a timeline to establish the projected dates that various audit steps should be completed

The audit timeline has been established and will be reviewed in the following slides.

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Timeline07/15/07through

08/27/07

• Between July 15, 2007 and August 1, 2007, the Audit Core Team will request that the CSPs:

• Supply a listing of Model 1 Sellers they have preformed CSP services for during the audit period, along with the date they started performing services for each Model 1 seller. The CSPs will also be requested to supply a listing of the states that each Model 1 Seller holds volunteer status in.

• Prepare downloads of sales transaction information, exemption information, and tax collection/remittance information on each model 1 seller split by member and/or associate member state. This information will be for the state auditors’ use in their tax compliance audits.

• Prepare downloads of data as specifically requested by the Audit Core Team for use in completing the audit responsibilities outline in rule 806.3.4(D)(2).

Timeline

07/15/07through

08/27/07(Continued)

• Between July 15, 2007 and August 1, 2007, The Audit Core Team will submit questionnaires to the CSPs, member states, and the Office of Executive Director.

• All questionnaires must be returned to the Audit Core Team by the end of business on Friday, August 17, 2007.

• By the end of business on Friday, August 24, 2007, the CSPs must place on the Core Audit Team’s FTP site the data downloads specifically requested by the Audit Core Team.

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Timeline

08/28/07and 08/31/07

• The Audit Core Team will meet in St. Paul, Minnesota to review the completed questionnaires, go over data downloads, and finalize the CSP field work plans. An all day meeting is scheduled for Tuesday, August 28, 2007 and a half day meeting is planned for the morning of Friday, August 31, 2007.

Timeline

09/01/07through 10/15/07

• The Audit Core Team will complete field work at the CSPs location (it is important that during this time frame the Audit Core Team complete all field work in areas that could lead to an audit adjustment by any member/ associate member state).

• By October 1, 2007, the CSPs must place on each member state’s or associate member state’s FTP site the state specific sales transaction information, exemption information, and tax collection/remittance information for each model 1 seller they performed CSP services for.

• By October 15, 2007, The Audit Core Team will prepare preliminary reports that will be forwarded to the member states and associate member states detailing work completed in potential audit adjustment areas.

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Timeline

10/16/07through

12/15/07

• During this period of time, the Audit Core Team can continue to work on and finalize the contract compliance portion of CSP audits.

• The member and associate member states will review the model 1 sellers’ records and prepare reports that notify the Audit Core Team of their findings.

• The member and associate member states’ preliminary feedback reports must be forwarded to the Audit Core Team by the end of business on Friday, December 14, 2007.

Timeline

12/16/07through 01/15/08

• The Audit Core Team will compile a report on the initial findings of the contract compliance audit and the member/associate member states’ tax compliance audits and submit the report to the CSP.

• Each CSP compliance audit initial findings must be forwarded to the respective CSP by the end of business on Tuesday, January 15, 2008.

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Timeline01/16/08through 02/15/08

• The CSP will review and comment on the preliminary findings of the compliance audit. Comments will be sent to the Audit Core Team and member/associate member states.

• Conference calls and/or meetings to formally discuss the preliminary findings with the CSPs can be conducted on Wednesday, January 16, 2008 through Friday, January 18, 2008 or Monday, January 21, 2008 through Wednesday, January 23, 2008.

• Conference calls and/or meetings to discuss the CSPs comments after final review will be scheduled during the week of February 11, 2008.

• Final comments to the Audit Core Team from the CSPs must be forwarded to the Core Team by the end business on Friday, February 15, 2008. Preferred method of delivery is electronic.

Timeline02/16/08through 02/29/08

03/01/08

• The audit core team and member/ associate member states can amend their findings, if necessary. The audit core team will prepare the final contract compliance audit reports to be sent to the executive director.

The final contract compliance audit reports on each CSP will be forwarded to the Executive Director on March 1, 2008.

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Rule 806.3.4(D)(2)(g)The Audit Core Team will:Acquire a list of sellers represented by each CSP and provide this information to the Streamlined Sales Tax Governing Board member statesThis information will be requested and forwarded to the various states.

Rule 806.3.4(D)(2)(h)The Audit Core Team will:Coordinate with state auditors a download of all sales processed by the CSP for each seller, which will be available through access to a FTP site maintained by the SSTGB, Inc. to receive electronic records

The Audit Core Team will request that the CSPs download each states model 1 sellers’ transactions to the states FTP site. The Audit Core Team will follow-up to be assured the data is properly transferred.

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ATTENTION !!!

• The next five areas to be discussed could result in audit findings relevant to the tax compliance audits.

Rule 806.3.4(D)(2)(e)The Audit Core Team will:Verify that all tax collected was remitted timely to the appropriate tax authority

Through sampling (statistical and/or random) and evaluation of the CSPs system, the Audit Core Team will verify that taxes collected are being remitted to the proper tax authority. As part of these procedures, sourcing will be evaluated.

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Rule 806.3.4(D)(2)(f)The Audit Core Team will:Verify that sales were accurately reported by the CSP/Seller on simplified electronic returns (SERs)

Through statistical and/or random sampling the Audit Core Team will verify that both gross sales and net taxable sales are being properly reported on the simplified electronic returns.

Rule 806.3.4(D)(2)(b)The Audit Core Team will:Verify that compensation was calculated properly for all volunteer sellers

The Audit Core Team will evaluate the CSP’s system to be assured it is calculating compensation as dictated in the contract. Quarterly Compensation reports will be audited. A sampling of filed simplified electronic returns will be reviewed.

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Compensation:

• You may find the manner be which compensation is calculated interesting. Compensation is addressed in Section D of the current contract between the CSPs and SST Governing Board. The compensation formula can be reviewed in section “D.5”, the rate adjustment process is outlined in section “D.6”, and resetting rates annually is addressed in section “D.7”.

Rule 806.3.4(D)(2)(d)The Audit Core Team will:Verify that the appropriate entity use exemption data elements are captured by the CSP system

The Audit Core Team will sample to be confident the CSP is obtaining the proper exemption data elements. The Core Team may request exception reports indicating missing exemption data elements.

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Rule 806.3.4(D)(2)(c)The Audit Core Team will:Verify that appropriate procedures for mapping exist, are in conformance with the mapping requirements, and are followed in the initial mapping setup, as well as during updates and corrections to mapping The Audit Core Team will review the CSP’s mapping policies and procedures. They will also sample the CSPs’ mapping of their model 1 seller’s products to the generic taxability matrix categories.

Rule 806.3.4(D)(2)(a)The Audit Core Team will:Determine the CSP’s level of compliance with the terms of the CSP contract. (Questionnaires and specific tests will be used to assess the CSP’s contract compliance.)

The Audit Core Team will issue questionnaires to the CSPs, each Member/Associate Member State, and the Office of Executive Director addressing various elements of the contract. The completed questionnaires will be analyzed and used as the starting point of the contract compliance audit.

(continued)

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Over a number of months, the SST Audit Committee isolated areas of definite audit interest in the CSP contract. The AuditCore Team will specifically look at these areas and complete various compliance audit procedures to assess the CSPs compliance with the contract.

Rule 806.3.4(D)(2)(a) - continued

Rule 806.3.4(D)(2)(j)The Audit Core Team will:Compile the feedback reports from the member states, summarize the findings and report to the Executive Director of the Streamlined Sales Tax Governing Board. The summaries must comply with confidentiality restrictions that apply to the SST Governing Board regarding disclosure.

Continued – next slide

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For each CSP, the Audit Core Team will incorporate its findings from the contract compliance audit with the feedback reports from the Member and Associate Member States into a final compliance audit package to be issued to the Executive Director of the Streamlined Sales Tax Governing Board.

The Executive Director and the Governing Board will use these audits to evaluate the CSPs for contract renewal.

Rule 806.3.4(D)(2)(j) - continued

Final Audit Report

• Per rule 806.3.5.3(C)The feedback report on the audit findings that goes to the Executive Director will contain general information on errors found and will not contain specific taxpayer information to ensure the confidentiality of taxpayer information.

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Important Dates for Member and Associate Member State Auditors

The CSP's will place on each member/associate members state's FTP site the state specific sales transaction information, exemption information, and tax collection/remittance information for each model 1 seller they performed CSP services for.

October 1, 2007Monday

All questionnaires must be returned to Audit Core Team by end of business today

August 17, 2007Friday

Audit Core team will submit questionnaire to member/associate member states.Today


Member/associate member states will review the model 1 sellers' records and prepare reports that notify the Audit Core Team of their findings.

October 16, 2007

to December 13,

2007

The Audit Core team will forward to member/associate member states reports detailing work completed in potential audit adjustment areas.

October 15, 2007Monday

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The CSP will review and comment on the preliminary findings of the compliance audit. Comments will be sent to the Audit Core Team and member/associate member states.

December 15, 2007

toJanuary 16,

2008

All member/associate member states' preliminary feedback reports must be forwarded to the Audit Core Team by the end of business today.

December 14, 2007Friday


The final contract compliance audit report on each CSP will be forwarded to the Executive director

March 1, 2008Saturday

The Audit Core Team and member/associate member states can amend their findings, if necessary

February 16, 2008

to February 29,

2008

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QUESTIONS???

Thank You.&

Good Luck

1

STREAMLINED SALES AND 2

USE TAX AGREEMENT 3

4

Adopted November 12, 2002 5

(Amended November 19, 2003, November 16, 2004, April 16, 2005, 6

October 1, 2005, January 13, 2006, April 18, 2006, August 30, 2006, 7

December 14, 2006, and June 23, 2007) 8

9

Streamlined Sales and Use Tax Agreement Page 1 June 23, 2007

TABLE OF CONTENTS 1

2

ARTICLE I 3

Purpose and Principle 4

101 Title . . . . . . . . . p. 6 5

102 Fundamental Purpose . . . . . . . p. 6 6

103 Taxing Authority Preserved . . . . . . p. 6 7

104 Defined Terms . . . . . . . p. 7 8

105 Treatment of Vending Machines . . . . . p. 7 9

10

ARTICLE II 11

Definitions 12

201 Agent . . . . . . . . . p. 8 13

202 Certified Automated System (CAS) . . . . . p. 8 14

203 Certified Service Provider (CSP) . . . . . p. 8 15

204 Entity-Based Exemption . . . . . . p. 8 16

205 Model 1 Seller . . . . . . . p. 8 17

206 Model 2 Seller . . . . . . . p. 8 18

207 Model 3 Seller . . . . . . . p. 8 19

208 Person . . . . . . . . p. 9 20

209 Product-Based Exemption . . . . . . p. 9 21

210 Purchaser . . . . . . . . p. 9 22

211 Registered Under This Agreement . . . . . p. 9 23

212 Seller . . . . . . . . . p. 9 24

213 State . . . . . . . . . p. 9 25

214 Use-Based Exemption . . . . . . p. 9 26

27

ARTICLE III 28

Requirements Each State Must Accept to Participate 29

301 State Level Administration. . . . . . . p. 10 30


302 State and Local Tax Bases . . . . . . p. 10 1

303 Seller Registration . . . . . . . p. 10 2

304 Notice for Tax Changes . . . . . . p. 11 3

305 Local Rate and Boundary Changes . . . . . p. 11 4

306 Relief from Certain Liability . . . . . . p. 14 5

307 Database Requirements and Exceptions . . . . p. 15 6

308 State and Local Tax Rates . . . . . . p. 16 7

309 Application of General Sourcing Rules and Exclusions From the Rules p. 16 8

310 General Sourcing Rules . . . . . . p. 17 9

311 General Sourcing Definitions . . . . . p. 20 10

312 Multiple Points of Use (Effective through December 31, 2007) 11

Repealed December 14, 2006 . . . . . . p. 20 12

312 Multiple Points of Use (Effective on and after January 1, 2008) 13

Repealed December 14, 2006 . . . . . . p. 21 14

313 Direct Mail Sourcing . . . . . . . p. 22 15

314 Telecommunication and Related Services Sourcing Rule. . . p. 23 16

315 Telecommunication Sourcing Definitions (Effective through 17

Dec. 31, 2007). . . . . . . . p. 25 18

315 Telecommunication Sourcing Definitions (Effective on and after 19

January 1, 2008). . . . . . . . p. 27 20

316 Enactment of Exemptions (Effective through Dec. 31, 2007). . p. 29 21

316 Enactment of Exemptions (Effective on and after January 1, 2008) . p. 30 22

317 Administration of Exemptions . . . . . p. 32 23

318 Uniform Tax Returns . . . . . . . p. 34 24

319 Uniform Rules for Remittances of Funds . . . . p. 35 25

320 Uniform Rules for Recovery of Bad Debts . . . . p. 36 26

321 Confidentiality and Privacy Protections under Model 1 . . p. 37 27

322 Sales Tax Holidays . . . . . . . p. 39 28

323 Caps and Thresholds . . . . . . . p. 43 29

324 Rounding Rule . . . . . . . p. 43 30


325 Customer Refund Procedures . . . . . . p. 44 1

326 Direct Pay Permit . . . . . . . p. 45 2

327 Library of Definitions . . . . . . p. 45 3

328 Taxability Matrix . . . . . . . p. 46 4

329 Effective Date for Rate Changes . . . . . p. 46 5

330 Bundled Transactions (Effective on and after January 1, 2008) . p. 46 6

331 Relief From Certain Liability (Effective on and after January 1, 2009) p. 47 7

8

ARTICLE IV 9

Seller Registration 10

401 Seller Participation . . . . . . . p. 49 11

402 Amnesty for Registration . . . . . . p. 49 12

403 Method of Remittance . . . . . . . p. 50 13

404 Registration by an Agent . . . . . . p. 51 14

15

ARTICLE V 16

Provider and System Certification 17

501 Certification of Service Providers and Automated Systems . . p. 52 18

502 State Review and Approval of Certified Automated System 19

Software and Certain Liability Relief (Effective on and after 20

January 1, 2008). . . . . . . . p. 53 21

22

ARTICLE VI 23

Monetary Allowances for New Technological 24

Models For Sales Tax Collection 25

601 Monetary Allowance Under Model 1 . . . . . p. 55 26

602 Monetary Allowance for Model 2 Sellers . . . . p. 55 27

603 Monetary Allowance for Model 3 Sellers 28

and All Other Sellers Not Under Models 1 or 2 . . . p. 56 29

30


ARTICLE VII 1

Agreement Organization 2

701 Effective Date . . . . . . . . p. 57 3

702 Approval of Initial States . . . . . . p. 57 4

703 Streamlined Sales Tax Implementing States . . . . p. 58 5

704 Consideration of Petitions . . . . . . p. 60 6

705 Associate Membership . . . . . . p. 60 7

8

ARTICLE VIII 9

State Entry and Withdrawal 10

801 Entry Into Agreement . . . . . . p. 63 11

802 Certificate of Compliance . . . . . . p. 64 12

803 Annual Recertification of Member States . . . . p. 64 13

804 Requirements for Membership Approval . . . . p. 65 14

805 Compliance . . . . . . . . p. 65 15

806 Agreement Administration . . . . . . p. 65 16

807 Open Meetings . . . . . . . p. 66 17

808 Withdrawal of Membership or Expulsion of a Member. . . p. 67 18

809 Sanction of Member States . . . . . . p. 68 19

810 State and Local Advisory Council . . . . . p. 69 20

811 Business Advisory Council . . . . . . p. 69 21

22

ARTICLE IX 23

Amendments and Interpretations 24

901 Amendments to Agreement . . . . . . p. 70 25

902 Interpretations of Agreement . . . . . . p. 70 26

903 Definition Requests . . . . . . . p. 71 27

28

ARTICLE X 29

Issue Resolution Process 30


1001 Rules and Procedures for Dispute Resolution . . . p. 72 1

1002 Petition for Resolution . . . . . . p. 72 2

1003 Final Decision of Governing Board . . . . . p. 72 3

1004 Limited Scope of this Article . . . . . . p. 72 4

5

ARTICLE XI 6

Relationship of Agreement to Member States and Persons 7

1101 Cooperating Sovereigns . . . . . . p. 74 8

1102 Relationship to State Law . . . . . . p. 74 9

1103 Limited Binding and Beneficial Effect . . . . p. 74 10

1104 Final Determinations . . . . . . . p. 75 11

12

ARTICLE XII 13

Review of Costs and Benefits Associated with the System 14

1201 Review of Costs and Benefits . . . . . . p. 76 15

16

Appendix A 17

Petition for Membership. . . . . . . . p. 77 18

Appendix B 19

Index of Definitions . . . . . . . . p. 78 20

Appendix C 21

Library of Definitions . . . . . . . . p. 82 22

Appendix D 23

Library of Interpretations . . . . . . . p. 109 24


ARTICLE I 1

PURPOSE AND PRINCIPLE 2

3

Section 101: TITLE 4

This multistate Agreement shall be referred to, cited, and known as the Streamlined Sales and 5

Use Tax Agreement. 6

7

Section 102: FUNDAMENTAL PURPOSE 8

It is the purpose of this Agreement to simplify and modernize sales and use tax administration in 9

the member states in order to substantially reduce the burden of tax compliance. The Agreement 10

focuses on improving sales and use tax administration systems for all sellers and for all types of 11

commerce through all of the following: 12

A. State level administration of sales and use tax collections. 13

B. Uniformity in the state and local tax bases. 14

C. Uniformity of major tax base definitions. 15

D. Central, electronic registration system for all member states. 16

E. Simplification of state and local tax rates. 17

F. Uniform sourcing rules for all taxable transactions. 18

G. Simplified administration of exemptions. 19

H. Simplified tax returns. 20

I. Simplification of tax remittances. 21

J. Protection of consumer privacy. 22

23

Section 103: TAXING AUTHORITY PRESERVED 24

This Agreement shall not be construed as intending to influence a member state to impose a tax 25

on or provide an exemption from tax for any item or service. However, if a member state 26

chooses to tax an item or exempt an item from tax, that state shall adhere to the provisions 27

concerning definitions as set out in Article III of this Agreement. 28

29


Section 104: DEFINED TERMS 1

This Agreement defines terms for use within the Agreement and for application in the sales and 2

use tax laws of the member states. The definition of a term is not intended to influence the 3

interpretation or application of that term with respect to other tax types. 4

5

An alphabetical list of all the terms defined in the Agreement and their location in the Agreement 6

is found in Appendix B of this Agreement, the Index of Definitions. Terms defined for use 7

within this Agreement are set out in Article II of the Agreement. Many of the uniform definitions 8

for application in the sales and use tax laws of the member states are set out in Appendix C of 9

this Agreement, the Library of Definitions. Definitions that are not set out in Appendix C are 10

defined when applied in a particular section of the Agreement and are set out in that section of 11

the Agreement. The appendices have the same effect as the Articles in the Agreement. 12

13

Section 105: TREATMENT OF VENDING MACHINES 14

The provisions of the Agreement do not apply to vending machines sales. The Agreement does 15

not restrict how a member state taxes vending machine sales. 16


ARTICLE II 1

DEFINITIONS 2

3

The following definitions apply in this Agreement: 4

Section 201: AGENT 5

A person appointed by a seller to represent the seller before the member states. 6

Section 202: CERTIFIED AUTOMATED SYSTEM (CAS) 7

Software certified under the Agreement to calculate the tax imposed by each jurisdiction on a 8

transaction, determine the amount of tax to remit to the appropriate state, and maintain a record 9

of the transaction. 10

Section 203: CERTIFIED SERVICE PROVIDER (CSP) 11

An agent certified under the Agreement to perform all the seller's sales and use tax functions, 12

other than the seller's obligation to remit tax on its own purchases. 13

Section 204: ENTITY-BASED EXEMPTION 14

An exemption based on who purchases the product or who sells the product. An exemption that 15

is available to all individuals shall not be considered an entity-based exemption. 16

Compiler’s note: On October 1, 2005 Section 204 was amended by adding the second sentence. Each member state 17

shall comply with the October 1, 2005 amendment to this section no later than January 1, 2008. 18

Section 205: MODEL 1 SELLER 19

A seller that has selected a CSP as its agent to perform all the seller's sales and use tax functions, 20

other than the seller's obligation to remit tax on its own purchases. 21


A seller that has selected a CAS to perform part of its sales and use tax functions, but retains 23

responsibility for remitting the tax. 24


A seller that has sales in at least five member states, has total annual sales revenue of at least five 26

hundred million dollars, has a proprietary system that calculates the amount of tax due each 27

jurisdiction, and has entered into a performance agreement with the member states that 28

establishes a tax performance standard for the seller. As used in this definition, a seller includes 29

an affiliated group of sellers using the same proprietary system. 30

31 Streamlined Sales and Use Tax Agreement Page 9 June 23, 2007

Section 208: PERSON 1

An individual, trust, estate, fiduciary, partnership, limited liability company, limited liability 2

partnership, corporation, or any other legal entity. 3

Section 209: PRODUCT-BASED EXEMPTION 4

An exemption based on the description of the product and not based on who purchases the 5

product or how the purchaser intends to use the product. 6

Section 210: PURCHASER 7

A person to whom a sale of personal property is made or to whom a service is furnished. 8

Section 211: REGISTERED UNDER THIS AGREEMENT 9

Registration by a seller with the member states under the central registration system provided in 10

Article IV of this Agreement. 11

Section 212: SELLER 12

A person making sales, leases, or rentals of personal property or services. 13

Section 213: STATE 14

Any state of the United States, the District of Columbia, and the Commonwealth of Puerto Rico. 15

Compiler’s note: On April 18, 2006 Section 213 was amended as follows: “Any state of the United States, and the 16

District of Columbia and the Commonwealth of Puerto Rico.” The amendment to this section became effective upon 17

adoption. 18

Section 214: USE-BASED EXEMPTION 19

An exemption based on a specified use of the product by the purchaser. 20

Compiler’s note: On October 1, 2005 Section 214 was amended as follows: “An exemption based on a specified use 21

of the product by the purchaser’s use of the product.” Each member state shall comply with the October 1, 2005 22

amendment to this section no later than January 1, 2008. 23


ARTICLE III 1

REQUIREMENTS EACH STATE MUST ACCEPT TO PARTICIPATE 2

3

Section 301: STATE LEVEL ADMINISTRATION 4

Each member state shall provide state level administration of sales and use taxes. The state level 5

administration may be performed by a member state's Tax Commission, Department of Revenue, 6

or any other single entity designated by state law. Sellers are only required to register with, file 7

returns with, and remit funds to the state level authority. Each member state shall provide for 8

collection of any local taxes and distribution of them to the appropriate taxing jurisdictions. 9

Each member state shall conduct, or authorize others to conduct on its behalf, all audits of the 10

sellers registered under the Agreement for that state’s tax and the tax of its local jurisdictions, 11

and local jurisdictions shall not conduct independent sales or use tax audits of sellers registered 12

under the Agreement. 13

14

Section 302: STATE AND LOCAL TAX BASES 15

Through December 31, 2005, if a member state has local jurisdictions that levy a sales or use tax, 16

all local jurisdictions in the state shall have a common tax base. After December 31, 2005, the 17

tax base for local jurisdictions shall be identical to the state tax base unless otherwise prohibited 18

by federal law. This section does not apply to sales or use taxes levied on the retail sale or 19

transfer of motor vehicles, aircraft, watercraft, modular homes, manufactured homes, or mobile 20

homes. 21

22

Section 303: SELLER REGISTRATION 23

Each member state shall participate in an online sales and use tax registration system in 24

cooperation with the other member states. Under this system: 25

A. A seller registering under the Agreement is registered in each of the member states. 26

B. The member states agree not to require the payment of any registration fees or other 27

charges for a seller to register in a state in which the seller has no legal requirement to 28

register. 29

C. A written signature from the seller is not required. 30


D. An agent may register a seller under uniform procedures adopted by the member states. 1

E. A seller may cancel its registration under the system at any time under uniform 2

procedures adopted by the governing board. Cancellation does not relieve the seller of its 3

liability for remitting to the proper states any taxes collected. 4

5

Section 304: NOTICE FOR STATE TAX CHANGES 6

A. Each member state shall lessen the difficulties faced by sellers when there is a change in 7

a state sales or use tax rate or base by making a reasonable effort to do all of the 8

following: 9

1. Provide sellers with as much advance notice as practicable of a rate change. 10

2. Limit the effective date of a rate change to the first day of a calendar quarter. 11

3. Notify sellers of legislative changes in the tax base and amendments to sales and use 12

tax rules and regulations. 13

B. Failure of a seller to receive notice or failure of a member state to provide notice or limit 14

the effective date of a rate change shall not relieve the seller of its obligation to collect 15

sales or use taxes for that member state. 16

17

Section 305: LOCAL RATE AND BOUNDARY CHANGES 18

Each member state that has local jurisdictions that levy a sales or use tax shall: 19

A. Provide that local rate changes will be effective only on the first day of a calendar 20

quarter after a minimum of sixty days’ notice to sellers. 21

B. Apply local sales tax rate changes to purchases from printed catalogs wherein the 22

purchaser computed the tax based upon local tax rates published in the catalog only on 23

the first day of a calendar quarter after a minimum of one hundred twenty days’ notice to 24

sellers. 25

C. For sales and use tax purposes only, apply local jurisdiction boundary changes only on 26

the first day of a calendar quarter after a minimum of sixty days’ notice to sellers. 27

D. Provide and maintain a database that describes boundary changes for all taxing 28

jurisdictions. This database shall include a description of the change and the effective 29

date of the change for sales and use tax purposes. 30


E. Provide and maintain a database of all sales and use tax rates for all of the jurisdictions 1

levying taxes within the state. For the identification of states, counties, cities, and 2

parishes, codes corresponding to the rates must be provided according to Federal 3

Information Processing Standards (FIPS) as developed by the National Institute of 4

Standards and Technology. For the identification of all other jurisdictions, codes 5

corresponding to the rates must be in the format determined by the governing board. 6

F. Provide and maintain a database that assigns each five digit and nine digit zip code 7

within a member state to the proper tax rates and jurisdictions. The state must apply the 8

lowest combined tax rate imposed in the zip code area if the area includes more than one 9

tax rate in any level of taxing jurisdictions. If a nine digit zip code designation is not 10

available for a street address or if a seller or CSP is unable to determine the nine digit zip 11

code designation applicable to a purchase after exercising due diligence to determine the 12

designation, the seller or CSP may apply the rate for the five digit zip code area. For the 13

purposes of this section, there is a rebuttable presumption that a seller or CSP has 14

exercised due diligence if the seller has attempted to determine the nine digit zip code 15

designation by utilizing software approved by the governing board that makes this 16

designation from the street address and the five digit zip code applicable to a purchase. 17

G. Have the option of providing address-based boundary database records for assigning 18

taxing jurisdictions and their associated rates which shall be in addition to the 19

requirements of subsection (F) of this section. The database records must be in the same 20

approved format as the database records pursuant to subsection (F) of this section and 21

must meet the requirements developed pursuant to the federal Mobile 22

Telecommunications Sourcing Act (4 U.S.C.A. Sec. 119(a)). The governing board may 23

allow a member state to require sellers that register under this Agreement to use an 24

address-based database provided by that member state. If any member state develops 25

address-based assignment database records pursuant to the Agreement, a seller or CSP 26

may use those database records in place of the five and nine-digit zip code database 27

records provided for in subsection (F) of this section. If a seller or CSP is unable to 28

determine the applicable rate and jurisdiction using an address-based database record 29

after exercising due diligence, the seller or CSP may apply the nine digit zip code 30


designation applicable to a purchase. If a nine-digit zip code designation is not available 1

for a street address or if a seller or CSP is unable to determine the nine digit zip code 2

designation applicable to a purchase after exercising due diligence to determine the 3

designation, the seller or CSP may apply the rate for the five digit zip code area. For the 4

purposes of this section, there is a rebuttable presumption that a seller or CSP has 5

exercised due diligence if the seller or CSP has attempted to determine the tax rate and 6

jurisdiction by utilizing software approved by the governing board that makes this 7

assignment from the address and zip code information applicable to the purchase. 8

H. States that have met the requirements of subsection (F) may also elect to certify vendor 9

provided address-based databases for assigning tax rates and jurisdictions. The 10

databases must be in the same approved format as the database records pursuant to (G) 11

of this section and must meet the requirements developed pursuant to the federal Mobile 12

Telecommunications Sourcing Act (4 U.S.C.A. Sec. 119 (a)). If a state certifies a 13

vendor address-based database, a seller or CSP may use that database in place of the 14

database provided for in subsection (F) or (G) of this section. Vendors providing 15

address-based databases may request certification of their databases from the governing 16

board. Certification by the governing board does not replace the requirement that the 17

databases be certified by the states individually. 18

I. Make databases provided pursuant to subsections (E), (F), (G) and (H) available to a 19

seller or CSP by the first day of the month prior to the first day of a calendar quarter. 20

Databases must be in a format approved by the governing board and available on each 21

state’s website or other location determined by the governing board. 22

Compiler’s note: On October 1, 2005 the following amendments were made to Section 305: 23

1. In Section 305 (F) “or CSP” was added after each “seller.” In addition, in two places “of a 24

purchaser” was replaced with “applicable to a purchase.” 25

2. Section 305 (G) was amended as follows: “Participate with other member states in the 26

development of an Have the option of providing address-based system database records for 27

assigning taxing jurisdictions and their associated rates which shall be in addition to the 28

requirements of subsection (F) of this section. The system database records must be in the same 29

approved format as the database records pursuant to subsection (F) of this section and must meet 30

the requirements developed pursuant to the federal Mobile Telecommunications Sourcing Act (4 31

U.S.C. Sec. 119) (4 U.S.C.A. Sec.119 (a)). The governing board may allow a member state to 32


require sellers that register under this Agreement to use an address-based system database 1

provided by that member state. If any member state develops an address-based assignment system 2

database records pursuant to the Mobile Telecommunications Sourcing Act Agreement, a seller or 3

CSP may use that system those database records in place of the system five and nine-digit zip code 4

database records provided for in subsection (F) of this section. If a seller or CSP is unable to 5

determine the applicable rate and jurisdiction using an address-based database record after 6

exercising due diligence, the seller or CSP may apply the nine digit zip code designation 7

applicable to a purchase. If a nine-digit zip code designation is not available for a street address 8

or if a seller or CSP is unable to determine the nine digit zip code designation applicable to a 9

purchase after exercising due diligence to determine the designation, the seller or CSP may apply 10

the rate for the five digit zip code area. For the purposes of this section, there is a rebuttable 11

presumption that a seller or CSP has exercised due diligence if the seller or CSP has attempted to 12

determine the tax rate and jurisdiction by utilizing software approved by the governing board that 13

makes this assignment from the address and zip code information applicable to the purchase”. 14

3. Section305 (H) was added. 15

The amendment to this section became effective upon adoption. 16

Compiler’s note: On June 23, 2007 subsection I was added. 17

18

Section 306: RELIEF FROM CERTAIN LIABILITY 19

Each member state shall relieve sellers and CSPs using databases pursuant to subsections (F), 20

(G) and (H) of Section 305 from liability to the member state and local jurisdictions for having 21

charged and collected the incorrect amount of sales or use tax resulting from the seller or CSP 22

relying on erroneous data provided by a member state on tax rates, boundaries, or taxing 23

jurisdiction assignments. After providing adequate notice as determined by the governing board, 24

a member state that provides an address-based database for assigning taxing jurisdictions 25

pursuant to Section 305, subsection (G) or (H) may cease providing liability relief for errors 26

resulting from the reliance on the database provided by the member state under the provisions of 27

Section 305, subsection (F). If a seller demonstrates that requiring the use of the address-based 28

database would create an undue hardship, a member state and the governing board may extend 29

the relief from liability to such seller for a designated period of time. 30

Compiler’s note: On October 1, 2005 Section 306 was amended as follows: “Each member state shall relieve sellers 31

and CSPs using databases pursuant to subsections (F), (G) and (H) from liability to the member state and local 32

jurisdictions for having charged and collected the incorrect amount of sales or use tax resulting from the seller or 33


CSP relying on erroneous data provided by a member state on tax rates, boundaries, or taxing jurisdiction 1

assignments. After providing adequate notice as determined by the governing board, a A member state that provides 2

an address-based system database for assigning taxing jurisdictions pursuant to Section 305, subsection (G) or 3

pursuant to the federal Mobile Telecommunications Sourcing Act will not be required to provide or (H) may cease 4

providing liability relief for errors resulting from the reliance on the information database provided by the member 5

state under the provisions of Section 305, subsection (F). If a seller demonstrates that requiring the use of the 6

address-based database would create an undue hardship, a member state and the governing board may extend the 7

relief from liability to such seller for a designated period of time.” 8


10

Section 307: DATABASE REQUIREMENTS AND EXCEPTIONS 11

A. The electronic databases provided for in Section 305, subsections (D), (E), (F), and (G) 12

shall be in a downloadable format approved by the governing board. The databases may 13

be directly provided by the state or provided by a vendor as designated by the state. A 14

database provided by a vendor as designated by a state shall be applicable to and subject 15

to all provisions of Sections 305, 306 and this section. These databases must be 16

provided at no cost to the user of the database. 17

B. The provisions of Section 305, subsections (F) and (G) do not apply when the purchased 18

product is received by the purchaser at the business location of the seller. 19

C. The databases provided by Section 305, subsections (D), (E), (F), and (G) are not a 20

requirement of a state prior to entering into the Agreement. A seller that did not have a 21

requirement to register in a state prior to registering pursuant to this Agreement or a CSP 22

shall not be required to collect sales or use taxes for a state until the first day of the 23

calendar quarter commencing more than sixty days after the state has provided the 24

databases required by Section 305, subsections (D), (E), and (F). Provided, for the initial 25

implementation of the Agreement pursuant to Section 701, a CSP shall be required to 26

collect sales or use taxes for each member state, subject to the provisions of Section 705, 27

pursuant to the terms of the operating agreement entered into between the CSP and the 28

governing board in order to provide adequate time for testing and loading of the 29

databases. 30

Compiler’s note: On October 1, 2005 the following amendments were made to Section 307: 31

Section 307 (A) was amended by adding the last three sentences. 32


Section 307 (C) was amended by adding “and (G)” after “(F),” deleting the second sentence (The governing board 1

shall establish the effective dates for availability and use of the databases.) and adding the last two sentences. 2


4

Section 308: STATE AND LOCAL TAX RATES 5

A. No member state shall have multiple state sales and use tax rates on items of personal 6

property or services, except that a member state may impose a single additional rate, 7

which may be zero, on food and food ingredients and drugs as defined by state law 8

pursuant to the Agreement. In addition, if federal law prohibits the imposition of local 9

tax on a product that is subject to state tax, the state may impose an additional rate on 10

such product, provided such rate achieves tax parity for similar products. 11

B. A member state that has local jurisdictions that levy a sales or use tax shall not have 12

more than one local sales tax rate or more than one local use tax rate per local 13

jurisdiction. If the local jurisdiction levies both a sales tax and use tax, the local rates 14

must be identical. 15

C. The provisions of this section do not apply to sales or use taxes levied on electricity, 16

piped natural or artificial gas, or other heating fuels delivered by the seller, or the retail 17

sale or transfer of motor vehicles, aircraft, watercraft, modular homes, manufactured 18

homes, or mobile homes. 19

Compiler’s note: On April 18, 2006 Section 308A was amended by deleting “after December 31, 2005” following 20

“or services” and by adding the second sentence. The amendment to this section became effective upon adoption. 21

22

Section 309: APPLICATION OF GENERAL SOURCING RULES AND EXCLUSIONS 23

FROM THE RULES 24

A. Each member state shall agree to require sellers to source the retail sale of a product in 25

accordance with Section 310. The provisions of Section 310 apply regardless of the 26

characterization of a product as tangible personal property, a digital good, or a service. 27

The provisions of Section 310 only apply to determine a seller's obligation to pay or 28

collect and remit a sales or use tax with respect to the seller's retail sale of a product. 29

These provisions do not affect the obligation of a purchaser or lessee to remit tax on the 30

use of the product to the taxing jurisdictions of that use. 31


B. Sections 310 and 312 do not apply to sales or use taxes levied on the following: 1

1. The retail sale or transfer of watercraft, modular homes, manufactured homes, or 2

mobile homes. These items must be sourced according to the requirements of each 3

member state. 4

2. The retail sale, excluding lease or rental, of motor vehicles, trailers, semi-trailers, or 5

aircraft that do not qualify as transportation equipment, as defined in Section 310, 6

subsection (D). The retail sale of these items shall be sourced according to the 7

requirements of each member state, and the lease or rental of these items must be 8

sourced according to Section 310, subsection (C). 9

3. Telecommunications services and ancillary services, as set out in Section 315, and 10

Internet access service shall be sourced in accordance with Section 314. 11

4. Until December 31, 2009, florist sales as defined by each member state. Prior to this 12

date, these items must be sourced according to the requirements of each member 13

state. 14

Compiler’s note: On October 1, 2005 Section 309 (B)(4) was amended by deleting 2005 and inserting 2007. The 15

amendment to this section became effective upon adoption. Compiler’s note: On December 14, 2006 Section 309 16

(b) was amended as follows: “Section Sections 310 and 312 does do”, and 309 (B) (3) was amended by adding 17

“and ancillary services” following “services” and “and Internet access service” before “shall”. 18

Compiler’s note: On June 23, 2007 the date in subsection B 4 was changed from “December 31, 2007” to 19

December 31, 2009.” 20

21

Section 310: GENERAL SOURCING RULES 22

A. The retail sale, excluding lease or rental, of a product shall be sourced as follows: 23

1. When the product is received by the purchaser at a business location of the seller, the 24

sale is sourced to that business location. 25

2. When the product is not received by the purchaser at a business location of the seller, 26

the sale is sourced to the location where receipt by the purchaser (or the purchaser's 27

donee, designated as such by the purchaser) occurs, including the location indicated 28

by instructions for delivery to the purchaser (or donee), known to the seller. 29

3. When subsections (A)(1) and (A)(2) do not apply, the sale is sourced to the location 30

indicated by an address for the purchaser that is available from the business records of 31


the seller that are maintained in the ordinary course of the seller's business when use 1

of this address does not constitute bad faith. 2

4. When subsections (A)(1), (A)(2), and (A)(3) do not apply, the sale is sourced to the 3

location indicated by an address for the purchaser obtained during the consummation 4

of the sale, including the address of a purchaser's payment instrument, if no other 5

address is available, when use of this address does not constitute bad faith. 6

5. When none of the previous rules of subsections (A)(1), (A)(2), (A)(3), or (A)(4) 7

apply, including the circumstance in which the seller is without sufficient information 8

to apply the previous rules, then the location will be determined by the address from 9

which tangible personal property was shipped, from which the digital good or the 10

computer software delivered electronically was first available for transmission by the 11

seller, or from which the service was provided (disregarding for these purposes any 12

location that merely provided the digital transfer of the product sold). 13

B. The lease or rental of tangible personal property, other than property identified in 14

subsection (C) or subsection (D), shall be sourced as follows: 15

1. For a lease or rental that requires recurring periodic payments, the first periodic 16

payment is sourced the same as a retail sale in accordance with the provisions of 17

subsection (A). Periodic payments made subsequent to the first payment are sourced 18

to the primary property location for each period covered by the payment. The primary 19

property location shall be as indicated by an address for the property provided by the 20

lessee that is available to the lessor from its records maintained in the ordinary course 21

of business, when use of this address does not constitute bad faith. The property 22

location shall not be altered by intermittent use at different locations, such as use of 23

business property that accompanies employees on business trips and service calls. 24

2. For a lease or rental that does not require recurring periodic payments, the payment is 25

sourced the same as a retail sale in accordance with the provisions of subsection (A). 26

3. This subsection does not affect the imposition or computation of sales or use tax on 27

leases or rentals based on a lump sum or accelerated basis, or on the acquisition of 28

property for lease. 29


C. The lease or rental of motor vehicles, trailers, semi-trailers, or aircraft that do not qualify 1

as transportation equipment, as defined in subsection (D), shall be sourced as follows: 2

1. For a lease or rental that requires recurring periodic payments, each periodic payment 3

is sourced to the primary property location. The primary property location shall be as 4

indicated by an address for the property provided by the lessee that is available to the 5

lessor from its records maintained in the ordinary course of business, when use of this 6

address does not constitute bad faith. This location shall not be altered by intermittent 7

use at different locations. 8

2. For a lease or rental that does not require recurring periodic payments, the payment is 9

sourced the same as a retail sale in accordance with the provisions of subsection (A). 10

3. This subsection does not affect the imposition or computation of sales or use tax on 11

leases or rentals based on a lump sum or accelerated basis, or on the acquisition of 12

property for lease. 13

D. The retail sale, including lease or rental, of transportation equipment shall be sourced the 14

same as a retail sale in accordance with the provisions of subsection (A), 15

notwithstanding the exclusion of lease or rental in subsection (A). “Transportation 16

equipment” means any of the following: 17

1. Locomotives and railcars that are utilized for the carriage of persons or property in 18

interstate commerce. 19

2. Trucks and truck-tractors with a Gross Vehicle Weight Rating (GVWR) of 10,001 20

pounds or greater, trailers, semi-trailers, or passenger buses that are: 21

a. Registered through the International Registration Plan; and 22

b. Operated under authority of a carrier authorized and certificated by the U.S. 23

Department of Transportation or another federal authority to engage in the 24

carriage of persons or property in interstate commerce. 25

3. Aircraft that are operated by air carriers authorized and certificated by the U.S. 26

Department of Transportation or another federal or a foreign authority to engage in 27

the carriage of persons or property in interstate or foreign commerce. 28

4. Containers designed for use on and component parts attached or secured on the items 29

set forth in subsections (D)(1) through (D)(3). 30


Compiler’s note: The Governing Board issued an interpretation of Section 310C on April 18, 2006. That 1

interpretation can be found in the Library of Interpretations. 2

3

Section 311: GENERAL SOURCING DEFINITIONS 4

For the purposes of Section 310, subsection (A), the terms "receive" and "receipt" mean: 5

A. Taking possession of tangible personal property, 6

B. Making first use of services, or 7

C. Taking possession or making first use of digital goods, whichever comes first. 8

The terms "receive" and "receipt" do not include possession by a shipping company on behalf of 9

the purchaser. 10

11 Section 312: MULTIPLE POINTS OF USE (Effective through December 31, 2007) 12

Repealed on December 14, 2006 13

Compiler’s note: This section was repealed on December 14, 2006 effective upon adoption. The following is the 14

section prior to its repeal: 15

16 Notwithstanding the provisions of Section 310, a business purchaser that is not a holder of a direct pay permit that 17

knows at the time of its purchase of a digital good, computer software delivered electronically, or a service that the 18

digital good, computer software delivered electronically, or service will be concurrently available for use in more 19

than one jurisdiction shall deliver to the seller in conjunction with its purchase a form disclosing this fact ("Multiple 20

Points of Use or MPU" Exemption Form). 21

A. Upon receipt of the MPU Exemption Form, the seller is relieved of all obligation to collect, pay, or remit 22

the applicable tax and the purchaser shall be obligated to collect, pay, or remit the applicable tax on a 23

direct pay basis. 24

B. A purchaser delivering the MPU Exemption Form may use any reasonable, but consistent and uniform, 25

method of apportionment that is supported by the purchaser's business records as they exist at the time of 26

the consummation of the sale. 27

C. The MPU Exemption Form will remain in effect for all future sales by the seller to the purchaser (except 28

as to the subsequent sale's specific apportionment that is governed by the principle of subsection (B) and 29

the facts existing at the time of the sale) until it is revoked in writing. 30

D. A holder of a direct pay permit shall not be required to deliver a MPU Exemption Form to the seller. A 31

direct pay permit holder shall follow the provisions of subsection (B) in apportioning the tax due on a 32

digital good or a service that will be concurrently available for use in more than one jurisdiction. 33

34


Section 312: MULTIPLE POINTS OF USE (Effective on and after January 1, 2008) 1

Repealed on December 14, 2006 2

Compiler’s note: This section was repealed on December 14, 2006 effective upon adoption. The following is the 3

section prior to its repeal: 4

5 A. Notwithstanding the provisions of Section 310, a business purchaser that is not a holder of a direct pay 6

permit that knows at the time of its purchase of a digital good, computer software, or a service that the 7

digital good, computer software, or service will be concurrently available for use in more than one 8

jurisdiction shall deliver to the seller in conjunction with its purchase an exemption certificate claiming 9

multiple points of use or meet the requirements of Section 312, subsections (B) or (C). Computer software, 10

for purposes of this section includes, but is not limited to computer software delivered electronically, by 11

load and leave, or in tangible form. Computer software received in-person by a business purchaser at a 12

business location of the seller is not included. 13

1. Upon receipt of an exemption certificate claiming multiple points of use, the seller is relieved of 14

all obligation to collect, pay, or remit the applicable tax and the purchaser shall be obligated to 15

collect, pay, or remit the applicable tax on a direct pay basis. 16

2. A purchaser delivering an exemption certificate claiming multiple points of use may use any 17

reasonable, but consistent and uniform, method of apportionment that is supported by the 18

purchaser's books and records as they exist at the time the transaction is reported for sales or use 19

tax purposes. 20

3. A purchaser delivering an exemption certificate claiming multiple points of use shall report and 21

pay the appropriate tax to each jurisdiction where concurrent use occurs. The tax due will be 22

calculated as if the apportioned amount of the digital good, computer software or service had 23

been delivered to each jurisdiction to which the sale is apportioned pursuant to Section 312, 24

subdivision (A)(2). 25

4. The exemption certificate claiming multiple points of use will remain in effect for all future sales 26

by the seller to the purchaser (except as to the subsequent sale's specific apportionment that is 27

governed by the principles of Section 312, subdivisions (A)(2) and (A)(3)) until it is revoked in 28

writing. 29

B. Notwithstanding Section 312, subsection (A), when the seller knows that the product will be concurrently 30

available for use in more than one jurisdiction, but the purchaser does not provide an exemption certificate 31

claiming multiple points of use as required in subsection (A), the seller may work with the purchaser to 32

produce the correct apportionment. The purchaser and seller may use any reasonable, but consistent and 33

uniform, method of apportionment that is supported by the seller’s and purchaser’s business records as 34

they exist at the time the transaction is reported for sales or use tax purposes. If the purchaser certifies to 35


the accuracy of the apportionment and the seller accepts the certification, the seller shall collect and remit 1

the tax pursuant to Section 312, subdivision (A)(3). In the absence of bad faith, the seller is relieved of any 2

further obligation to collect tax on any transaction where the seller has collected tax pursuant to the 3

information certified by the purchaser. 4

C. When the seller knows that the product will be concurrently available for use in more than one jurisdiction 5

and the purchaser does not have a direct pay permit and does not provide the seller with an exemption 6

certificate claiming multiple points of use exemption as required in Section 312, subsection (A), or 7

certification pursuant to Section 312, subsection (B), the seller shall collect and remit the tax based on the 8

provisions of Section 310. 9

D. A holder of a direct pay permit shall not be required to deliver an exemption certificate claiming multiple 10

points of use to the seller. A direct pay permit holder shall follow the provisions of Section 312 subdivisions 11

(A)(2) and (A)(3) of this section in apportioning the tax due on a digital good, computer software, or a 12

service that will be concurrently available for use in more than one jurisdiction. 13

E. Nothing in this section shall limit a person’s obligation for sales or use tax to any state in which the 14

qualifying purchases are concurrently available for use, nor limit a person’s ability under local, state, 15

federal, or constitutional law, to claim a credit for sales or use taxes legally due and paid to other 16

jurisdictions. 17

18

Section 313: DIRECT MAIL SOURCING 19

A. Notwithstanding Section 310, a purchaser of direct mail that is not a holder of a direct 20

pay permit shall provide to the seller in conjunction with the purchase either a Direct 21

Mail Form or information to show the jurisdictions to which the direct mail is delivered 22

to recipients. 23

1. Upon receipt of the Direct Mail Form, the seller is relieved of all obligations to 24

collect, pay, or remit the applicable tax and the purchaser is obligated to pay or remit 25

the applicable tax on a direct pay basis. A Direct Mail Form shall remain in effect for 26

all future sales of direct mail by the seller to the purchaser until it is revoked in 27

writing. 28

2. Upon receipt of information from the purchaser showing the jurisdictions to which 29

the direct mail is delivered to recipients, the seller shall collect the tax according to 30

the delivery information provided by the purchaser. In the absence of bad faith, the 31

seller is relieved of any further obligation to collect tax on any transaction where the 32


seller has collected tax pursuant to the delivery information provided by the 1

purchaser. 2

B. If the purchaser of direct mail does not have a direct pay permit and does not provide the 3

seller with either a Direct Mail Form or delivery information, as required by subsection 4

(A) of this section, the seller shall collect the tax according to Section 310, subsection 5

(A)(5). Nothing in this paragraph shall limit a purchaser’s obligation for sales or use tax 6

to any state to which the direct mail is delivered. 7

C. If a purchaser of direct mail provides the seller with documentation of direct pay 8

authority, the purchaser shall not be required to provide a Direct Mail Form or delivery 9

information to the seller. 10

11

Section 314: TELECOMMUNICATION AND RELATED SERVICES SOURCING RULE 12

A. Except for the defined telecommunication services in subsection (C), the sale of 13

telecommunication service sold on a call-by-call basis shall be sourced to (i) each level 14

of taxing jurisdiction where the call originates and terminates in that jurisdiction or (ii) 15

each level of taxing jurisdiction where the call either originates or terminates and in 16

which the service address is also located. 17

B. Except for the defined telecommunication services in subsection (C), a sale of 18

telecommunications services sold on a basis other than a call-by-call basis, is sourced to 19

the customer's place of primary use. 20

C. The sale of the following telecommunication services shall be sourced to each level of 21

taxing jurisdiction as follows: 22

1. A sale of mobile telecommunications services other than air-to-ground radiotelephone 23

service and prepaid calling service, is sourced to the customer's place of primary use 24

as required by the Mobile Telecommunications Sourcing Act. 25

2. A sale of post-paid calling service is sourced to the origination point of the 26

telecommunications signal as first identified by either (i) the seller's 27

telecommunications system, or (ii) information received by the seller from its service 28

provider, where the system used to transport such signals is not that of the seller. 29


3. (Effective through December 31, 2007) A sale of prepaid calling service is sourced 1

in accordance with Section 310. Provided however, in the case of a sale of mobile 2

telecommunications service that is a prepaid telecommunications service, the rule 3

provided in Section 310, subsection (A)(5) shall include as an option the location 4

associated with the mobile telephone number. 5

3. (Effective on and after January 1, 2008) A sale of prepaid calling service or a sale 6

of a prepaid wireless calling service is sourced in accordance with Section 310. 7

Provided however, in the case of a sale of prepaid wireless calling service, the rule 8

provided in Section 310, subsection (A)(5) shall include as an option the location 9

associated with the mobile telephone number. 10

4. A sale of a private communication service is sourced as follows: 11

a. Service for a separate charge related to a customer channel termination point is 12

sourced to each level of jurisdiction in which such customer channel termination 13

point is located. 14

b. Service where all customer termination points are located entirely within one 15

jurisdiction or levels of jurisdiction is sourced in such jurisdiction in which the 16

customer channel termination points are located. 17

c. Service for segments of a channel between two customer channel termination points 18

located in different jurisdictions and which segment of channel are separately charged 19

is sourced fifty percent in each level of jurisdiction in which the customer channel 20

termination points are located. 21

d. Service for segments of a channel located in more than one jurisdiction or levels of 22

jurisdiction and which segments are not separately billed is sourced in each 23

jurisdiction based on the percentage determined by dividing the number of customer 24

channel termination points in such jurisdiction by the total number of customer 25

channel termination points. 26

D. The sale of Internet access service is sourced to the customer’s place of primary use. 27

E. The sale of an ancillary service is sourced to the customer’s place of primary use. 28

Compiler’s note: On April 16, 2005 Section 314, subdivision (C)(3) was amended by inserting “or a sale of a 29

prepaid wireless calling service” after “service” in the first line; and by deleting “mobile telecommunications 30


service that is a prepaid telecommunications” and inserting “prepaid wireless calling” in its place. Member states 1

shall comply with this amendment no later than January 1, 2008. Compiler’s note: On December 14, 2006 Section 2

314 was amended by the addition of D and E. 3

4

Section 315: TELECOMMUNICATION SOURCING DEFINITIONS (Effective through 5

December 31, 2007) 6

For the purpose of Section 314, the following definitions apply: 7

A. "Air-to-Ground Radiotelephone service" means a radio service, as that term is defined 8

in 47 CFR 22.99, in which common carriers are authorized to offer and provide radio 9

telecommunications service for hire to subscribers in aircraft. 10

B. "Call-by-call Basis" means any method of charging for telecommunications services 11

where the price is measured by individual calls. 12

C. "Communications Channel" means a physical or virtual path of communications over 13

which signals are transmitted between or among customer channel termination points. 14

D. "Customer" means the person or entity that contracts with the seller of 15

telecommunications services. If the end user of telecommunications services is not 16

the contracting party, the end user of the telecommunications service is the customer 17

of the telecommunication service, but this sentence only applies for the purpose of 18

sourcing sales of telecommunications services under Section 314. "Customer" does 19

not include a reseller of telecommunications service or for mobile 20

telecommunications service of a serving carrier under an agreement to serve the 21

customer outside the home service provider's licensed service area. 22

E. "Customer Channel Termination Point" means the location where the customer either 23

inputs or receives the communications. 24

F. "End user" means the person who utilizes the telecommunication service. In the case 25

of an entity, “end user” means the individual who utilizes the service on behalf of the 26

entity. 27

G. "Home service provider" means the same as that term is defined in Section 124(5) of 28

Public Law 106-252 (Mobile Telecommunications Sourcing Act). 29

H. "Mobile telecommunications service" means the same as that term is defined in 30

Section 124(7) of Public Law 106-252 (Mobile Telecommunications Sourcing Act). 31


I. "Place of primary use" means the street address representative of where the 1

customer's use of the telecommunications service primarily occurs, which must be the 2

residential street address or the primary business street address of the customer. In 3

the case of mobile telecommunications services, "place of primary use" must be 4

within the licensed service area of the home service provider. 5

J. "Post-paid calling service" means the telecommunications service obtained by 6

making a payment on a call-by-call basis either through the use of a credit card or 7

payment mechanism such as a bank card, travel card, credit card, or debit card, or by 8

charge made to a telephone number which is not associated with the origination or 9

termination of the telecommunications service. A post-paid calling service includes a 10

telecommunications service that would be a prepaid calling service except it is not 11

exclusively a telecommunication service. 12

K. "Prepaid calling service" means the right to access exclusively telecommunications 13

services, which must be paid for in advance and which enables the origination of calls 14

using an access number or authorization code, whether manually or electronically 15

dialed, and that is sold in predetermined units or dollars of which the number declines 16

with use in a known amount. 17

L. "Private communication service" means a telecommunication service that entitles the 18

customer to exclusive or priority use of a communications channel or group of 19

channels between or among termination points, regardless of the manner in which 20

such channel or channels are connected, and includes switching capacity, extension 21

lines, stations, and any other associated services that are provided in connection with 22

the use of such channel or channels. 23

M. "Service address" means: 24

1. The location of the telecommunications equipment to which a customer's call is 25

charged and from which the call originates or terminates, regardless of where the 26

call is billed or paid. 27

2. If the location in subsection (M)(1) is not known, service address means the 28

origination point of the signal of the telecommunications services first identified 29

by either the seller's telecommunications system or in information received by the 30


seller from its service provider, where the system used to transport such signals is 1

not that of the seller. 2

3. If the location in subsection (M)(1) and subsection (M)(2) are not known, the 3

service address means the location of the customer's place of primary use. 4

5

Section 315: TELECOMMUNICATION SOURCING DEFINITIONS (Effective on and 6

after January 1, 2008) 7

For the purpose of Section 314, the following definitions apply: 8

"Air-to-Ground Radiotelephone service" means a radio service, as that term is defined in 47 9

CFR 22.99, in which common carriers are authorized to offer and provide radio 10

telecommunications service for hire to subscribers in aircraft. 11

“Ancillary services” means services that are associated with or incidental to the provision of 12

“telecommunications services”, including but not limited to “detailed 13

telecommunications billing”, “directory assistance”, “vertical service”, and “voice 14

mail services”. 15

"Call-by-call Basis" means any method of charging for telecommunications services where 16

the price is measured by individual calls. 17

"Communications Channel" means a physical or virtual path of communications over which 18

signals are transmitted between or among customer channel termination points. 19

"Customer" means the person or entity that contracts with the seller of telecommunications 20

services. If the end user of telecommunications services is not the contracting party, 21

the end user of the telecommunications service is the customer of the 22

telecommunication service, but this sentence only applies for the purpose of sourcing 23

sales of telecommunications services under Section 314. "Customer" does not 24

include a reseller of telecommunications service or for mobile telecommunications 25

service of a serving carrier under an agreement to serve the customer outside the 26

home service provider's licensed service area. 27

"Customer Channel Termination Point" means the location where the customer either inputs 28

or receives the communications. 29


"End user" means the person who utilizes the telecommunication service. In the case of an 1

entity, “end user” means the individual who utilizes the service on behalf of the 2

entity. 3

"Home service provider" means the same as that term is defined in Section 124(5) of Public 4

Law 106-252 (Mobile Telecommunications Sourcing Act). 5

"Mobile telecommunications service" means the same as that term is defined in Section 6

124(7) of Public Law 106-252 (Mobile Telecommunications Sourcing Act). 7

"Place of primary use" means the street address representative of where the customer's use of 8

the telecommunications service primarily occurs, which must be the residential street 9

address or the primary business street address of the customer. In the case of mobile 10

telecommunications services, "place of primary use" must be within the licensed 11

service area of the home service provider. 12

"Post-paid calling service" means the telecommunications service obtained by making a 13

payment on a call-by-call basis either through the use of a credit card or payment 14

mechanism such as a bank card, travel card, credit card, or debit card, or by charge 15

made to a telephone number which is not associated with the origination or 16

termination of the telecommunications service. A post-paid calling service includes a 17

telecommunications service, except a prepaid wireless calling service, that would be a 18

prepaid calling service except it is not exclusively a telecommunication service. 19

"Prepaid calling service" means the right to access exclusively telecommunications services, 20

which must be paid for in advance and which enables the origination of calls using an 21

access number or authorization code, whether manually or electronically dialed, and 22

that is sold in predetermined units or dollars of which the number declines with use in 23

a known amount. 24

“Prepaid wireless calling service” means a telecommunications service that provides the right 25

to utilize mobile wireless service as well as other non-telecommunications services, 26

including the download of digital products delivered electronically, content and 27

ancillary services, which must be paid for in advance that is sold in predetermined 28

units or dollars of which the number declines with use in a known amount. 29


"Private communication service" means a telecommunication service that entitles the 1

customer to exclusive or priority use of a communications channel or group of 2

channels between or among termination points, regardless of the manner in which 3

such channel or channels are connected, and includes switching capacity, extension 4

lines, stations, and any other associated services that are provided in connection with 5

the use of such channel or channels. 6

"Service address" means: 7

1. The location of the telecommunications equipment to which a customer's call is 8

charged and from which the call originates or terminates, regardless of where the 9

call is billed or paid. 10

2. If the location in subsection (O)(1) is not known, service address means the 11

origination point of the signal of the telecommunications services first identified 12

by either the seller's telecommunications system or in information received by the 13

seller from its service provider, where the system used to transport such signals is 14

not that of the seller. 15

3. If the location in subsection (O)(1) and subsection (O)(2) are not known, the 16

service address means the location of the customer's place of primary use. 17

Compiler’s note: On April 16, 2005 Section 315 (J) was amended by inserting “, except a prepaid wireless calling 18

service,” after “telecommunications service in the second sentence. The former 315 (L) and (M) were renumbered 19

315 (M) and (N) and a new Section 315 (L) was inserted. The cross references in 315 (N) were changed to account 20

for the renumbering. Member states shall comply with amendments to this section no later than January 1, 2008. 21

Compiler’s note: On December 14, 2006 Section 315 was amended to add a new subsection B “ancillary services” 22

and a renumbering of the remaining subsections and cross references. 23

24 Section 316: ENACTMENT OF EXEMPTIONS (Effective through December 31, 2007) 25

A. A member state may enact a product-based exemption without restriction if the 26

Agreement does not have a definition for the product or for a term that includes the 27

product. If the Agreement has a definition for the product or for a term that includes the 28

product, a member state may exempt all items included within the definition but shall 29

not exempt only part of the items included within the definition unless the Agreement 30

sets out the exemption for part of the items as an acceptable variation. 31


B. A member state may enact an entity-based or a use-based exemption without restriction 1

if the Agreement does not have a definition for the product whose use or purchase by a 2

specific entity is exempt or for a term that includes the product. If the Agreement has a 3

definition for the product whose use or specific purchase is exempt, a member state may 4

enact an entity-based or a use-based exemption that applies to that product as long as the 5

exemption utilizes the Agreement definition of the product. If the Agreement does not 6

have a definition for the product whose use or specific purchase is exempt but has a 7

definition for a term that includes the product, a member state may enact an entity-based 8

or a use-based exemption for the product without restriction. 9

C. For purposes of complying with the requirements in this section, the inclusion of a 10

product within the definition of tangible personal property is disregarded. 11

12 Section 316: ENACTMENT OF EXEMPTIONS (Effective on and after January 1, 2008) 13

A. A member state shall enact entity-based, use-based and product-based exemptions in 14

accordance with the provisions of this section and shall utilize common definitions in 15

accordance with the provisions of Section 327 and Library of Definitions in Appendix C 16

of this Agreement. 17

B. (1) A member state may enact a product-based exemption without restriction if Part II of 18

the Library of Definitions does not have a definition for such product. 19

(2) A member state may enact a product-based exemption for a product if Part II of the 20

Library of Definitions has a definition for such product and the member state utilizes in 21

the exemption the product definition in a manner consistent with Part II of the Library of 22

Definitions and Section 327 of this Agreement. 23

(3) A member state may enact a product-based exemption exempting all items included 24

within a definition in Part II of the Library of Definitions but shall not exempt specific 25

items included within the product definition unless the product definition sets out an 26

exclusion for such item. 27

C. (1) A member state may enact an entity-based or a use-based exemption for a product 28

without restriction if Part II of the Library of Definitions does not have a definition for 29

such product. 30


(2) A member state may enact an entity-based or a use-based exemption for a product if 1

Part II of the Library of Definitions has a definition for such product and the member 2

state utilizes in the exemption the product definition in a manner consistent with Part II of 3

the Library of Definitions and Section 327 of this Agreement. 4

(3) A member state may enact an entity-based exemption for an item if Part II of the 5

Library of Definitions does not have a definition for such item but has a definition for a 6

product that includes such item. 7

(4) A member state may not enact a use-based exemption for an item which effectively 8

constitutes a product-based exemption if Part II of the Library of Definitions has a 9

definition for a product that includes such item. 10

(5) A member state may enact a use-based exemption for an item if Part II of the Library 11

of Definitions has a definition for a product that includes such item, if not prohibited in 12

Subsection (C) (4) of this section and if consistent with the definition in Part II of the 13

Library of Definitions. 14

For purposes of complying with the requirements in this section, the inclusion of a product 15

within the definition of tangible personal property is disregarded. 16

Compiler’s note: On October 1, 2005 all of Section 316 was repealed and replaced with the current language. The 17

following language was repealed: 18

A member state may enact a product-based exemption without restriction if the Agreement does not have a definition 19

for the product or for a term that includes the product. If the Agreement has a definition for the product or for a 20

term that includes the product, a member state may exempt all items included within the definition but shall not 21

exempt only part of the items included within the definition unless the Agreement sets out the exemption for part of 22

the items as an acceptable variation. 23

A member state may enact an entity-based or a use-based exemption without restriction if the Agreement does not 24

have a definition for the product whose use or purchase by a specific entity is exempt or for a term that includes the 25

product. If the Agreement has a definition for the product whose use or specific purchase is exempt, a member state 26

may enact an entity-based or a use-based exemption that applies to that product as long as the exemption utilizes the 27

Agreement definition of the product. If the Agreement does not have a definition for the product whose use or 28

specific purchase is exempt but has a definition for a term that includes the product, a member state may enact an 29

entity-based or a use-based exemption for the product without restriction. 30

For purposes of complying with the requirements in this section, the inclusion of a product within the definition of 31

tangible personal property is disregarded. 32

Each member state shall comply with the October 1, 2005 amendments to this section no later than January 1, 2008. 33


1

Section 317: ADMINISTRATION OF EXEMPTIONS 2

A. Each member state shall observe the following provisions when a purchaser claims an 3

exemption: 4

1. The seller shall obtain identifying information of the purchaser and the reason for 5

claiming a tax exemption at the time of the purchase as determined by the governing 6

board. 7

2. A purchaser is not required to provide a signature to claim an exemption from tax 8

unless a paper exemption certificate is used. 9

3. The seller shall use the standard form for claiming an exemption electronically as 10

adopted by the governing board. 11

4. The seller shall obtain the same information for proof of a claimed exemption 12

regardless of the medium in which the transaction occurred. 13

5. A member state may utilize a system wherein the purchaser exempt from the payment 14

of the tax is issued an identification number that shall be presented to the seller at the 15

time of the sale. 16

6. The seller shall maintain proper records of exempt transactions and provide them to a 17

member state when requested. 18

7. A member state shall administer use-based and entity-based exemptions when 19

practicable through a direct pay permit, an exemption certificate, or another means 20

that does not burden sellers. 21

8. After December 31, 2007, in the case of drop shipment sales, member states must 22

allow a third party vendor (e.g., drop shipper) to claim a resale exemption based on an 23

exemption certificate provided by its customer/re-seller or any other acceptable 24

information available to the third party vendor evidencing qualification for a resale 25

exemption, regardless of whether the customer/re-seller is registered to collect and 26

remit sales and use tax in the state where the sale is sourced. 27

28

B. (Effective through December 31, 2007) Each member state shall relieve sellers that 29

follow the requirements of this section from any tax otherwise applicable if it is 30


determined that the purchaser improperly claimed an exemption and to hold the 1

purchaser liable for the nonpayment of tax. This relief from liability does not apply to a 2

seller who fraudulently fails to collect the tax or solicits purchasers to participate in the 3

unlawful claim of an exemption. 4

5

B. (Effective on and after January 1, 2008) Each member state shall relieve sellers that 6

follow the requirements of this section from the tax otherwise applicable if it is 7

determined that the purchaser improperly claimed an exemption and to hold the 8

purchaser liable for the nonpayment of tax. This relief from liability does not apply to a 9

seller who fraudulently fails to collect tax; to a seller who solicits purchasers to 10

participate in the unlawful claim of an exemption; to a seller who accepts an exemption 11

certificate when the purchaser claims an entity-based exemption when (1) the subject of 12

the transaction sought to be covered by the exemption certificate is actually received by 13

the purchaser at a location operated by the seller and (2) the state in which that location 14

resides provides an exemption certificate that clearly and affirmatively indicates 15

(graying out exemption reason types on the uniform form and posting it on a state’s web 16

site is an indicator) that the claimed exemption is not available in that state; or to a seller 17

who accepts an exemption certificate claiming multiple points of use for tangible 18

personal property other than computer software for which an exemption claiming 19

multiple points of use is acceptable under Section 312. 20

C. (Effective on and after January 1, 2008) Each state shall relieve a seller of the tax 21

otherwise applicable if the seller obtains a fully completed exemption certificate or 22

captures the relevant data elements required under the Agreement within 90 days 23

subsequent to the date of sale. 24

1. If the seller has not obtained an exemption certificate or all relevant data elements as 25

provided in Section 317, subsection (C) the seller may, within 120 days subsequent to 26

a request for substantiation by a member state, either prove that the transaction was 27

not subject to tax by other means or obtain a fully completed exemption certificate 28

from the purchaser, taken in good faith. For purposes of this section, member states 29


may continue to apply their own standards of good faith until such time as a uniform 1

standard for good faith is defined in the Agreement. 2

2. Nothing in this section shall affect the ability of member states to require purchasers 3

to update exemption certificate information or to reapply with the state to claim 4

certain exemptions. 5

3. Notwithstanding the aforementioned, each member state shall relieve a seller of the 6

tax otherwise applicable if it obtains a blanket exemption certificate for a purchaser 7

with which the seller has a recurring business relationship. States may not request 8

from the seller renewal of blanket certificates or updates of exemption certificate 9

information or data elements when there is a recurring business relationship between 10

the buyer and seller. For purposes of this section a recurring business relationship 11

exists when a period of no more than twelve months elapses between sales 12

transactions. 13

Compiler’s note: On April 16, 2005 Subsection (A)(8) was added. Subsection (B) was amended to delete “any” and 14

insert “the” after “from” in the first sentence and by inserting all the material after “claim an exemption” in the 15

second sentence. Subsection (C) was inserted. Each member state shall comply with the April 16, 2005 16

amendments to this section no later than January 1, 2008. 17

Compiler’s note: On December 14, 2006 Section 312 was repealed making the last clause in the January 1, 2008 18

version of Section 317 B obsolete. 19

20 Section 318: UNIFORM TAX RETURNS 21

Each member state shall: 22

A. Require that only one tax return for each taxing period for each seller be filed for the 23

member state and all the taxing jurisdictions within the member state. 24

B. Require that returns be due no sooner than the twentieth day of the month following the 25

month in which the transaction occurred. 26

C. Allow any Model 1, Model 2, or Model 3 seller to submit its sales and use tax returns in 27

a simplified format that does not include more data fields than permitted by the 28

governing board. A member state may require additional informational returns to be 29

submitted not more frequently than every six months under a staggered system 30

developed by the governing board. 31


D. Allow any seller that is registered under the Agreement, which does not have a legal 1

requirement to register in the member state, and is not a Model 1, 2, or 3 seller, to submit 2

its sales and use tax returns as follows: 3

1. Upon registration, a member state shall provide to the seller the returns required by 4

that state. 5

2. A member state may require a seller to file a return anytime within one year of the 6

month of initial registration, and future returns may be required on an annual basis in 7

succeeding years. 8

3. In addition to the returns required in subsection (D)(2), a member state may require 9

sellers to submit returns in the month following any month in which they have 10

accumulated state and local tax funds for the state in the amount of one thousand 11

dollars or more. 12

E. Participate with other member states in developing a more uniform sales and use tax 13

return that, when completed, would be available to all sellers. 14

F. Require, at each member state's discretion, all Model 1, 2, and 3 sellers to file returns 15

electronically. It is the intent of the member states that all member states have the 16

capability of receiving electronically filed returns by January 1, 2004. 17

18

Section 319: UNIFORM RULES FOR REMITTANCES OF FUNDS 19

Each member state shall: 20

A. Require only one remittance for each return except as provided in this subsection. If any 21

additional remittance is required, it may only be required from sellers that collect more 22

than thirty thousand dollars in sales and use taxes in the member state during the 23

preceding calendar year as provided herein. The state shall allow the amount of any 24

additional remittance to be determined through a calculation method rather than actual 25

collections. Any additional remittances shall not require the filing of an additional 26

return. 27

B. Require, at each member state's discretion, all remittances from sellers under Models 1, 28

2, and 3 to be remitted electronically. 29

C. Allow for electronic payments by both ACH Credit and ACH Debit. 30


D. Provide an alternative method for making "same day" payments if an electronic funds 1

transfer fails. 2

E. Provide that if a due date falls on a legal banking holiday in a member state, the taxes are 3

due to that state on the next succeeding business day. 4

F. Require that any data that accompanies a remittance be formatted using uniform tax type 5

and payment type codes approved by the governing board. 6

Compiler’s note: On October 1, 2005 the second sentence in Section 319(A) was amended as follows: “The state 7

shall allow the amount of the any additional remittance shall to be determined through a calculation method rather 8

than actual collections. Any additional remittances and shall not require the filing of an additional return.” The 9

amendment to this section became effective upon adoption. 10

11

Section 320: UNIFORM RULES FOR RECOVERY OF BAD DEBTS 12

Each member state shall use the following to provide a deduction for bad debts to a seller. To 13

the extent a member state provides a bad debt deduction to any other party, the same procedures 14

will apply. Each member state shall: 15

A. Allow a deduction from taxable sales for bad debts. Any deduction taken that is 16

attributed to bad debts shall not include interest. 17

B. Utilize the federal definition of “bad debt” in 26 U.S.C. Sec. 166 as the basis for 18

calculating bad debt recovery. However, the amount calculated pursuant to 26 U.S.C. 19

Sec. 166 shall be adjusted to exclude: financing charges or interest; sales or use taxes 20

charged on the purchase price; uncollectable amounts on property that remain in the 21

possession of the seller until the full purchase price is paid; expenses incurred in 22

attempting to collect any debt, and repossessed property. 23

C. Allow bad debts to be deducted on the return for the period during which the bad debt is 24

written off as uncollectable in the claimant’s books and records and is eligible to be 25

deducted for federal income tax purposes. For purposes of this subsection, a claimant 26

who is not required to file federal income tax returns may deduct a bad debt on a return 27

filed for the period in which the bad debt is written off as uncollectable in the claimant’s 28

books and records and would be eligible for a bad debt deduction for federal income tax 29

purposes if the claimant was required to file a federal income tax return. 30


D. Require that, if a deduction is taken for a bad debt and the debt is subsequently collected 1

in whole or in part, the tax on the amount so collected must be paid and reported on the 2

return filed for the period in which the collection is made. 3

E. Provide that, when the amount of bad debt exceeds the amount of taxable sales for the 4

period during which the bad debt is written off, a refund claim may be filed within the 5

member state’s otherwise applicable statute of limitations for refund claims; however, 6

the statute of limitations shall be measured from the due date of the return on which the 7

bad debt could first be claimed. 8

F. Where filing responsibilities have been assumed by a CSP, allow the service provider to 9

claim, on behalf of the seller, any bad debt allowance provided by this section. The CSP 10

must credit or refund the full amount of any bad debt allowance or refund received to the 11

seller. 12

G. Provide that, for the purposes of reporting a payment received on a previously claimed 13

bad debt, any payments made on a debt or account are applied first proportionally to the 14

taxable price of the property or service and the sales tax thereon, and secondly to 15

interest, service charges, and any other charges. 16

H. In situations where the books and records of the party claiming the bad debt allowance 17

support an allocation of the bad debts among the member states, permit the allocation. 18

19

Section 321: CONFIDENTIALITY AND PRIVACY PROTECTIONS UNDER MODEL 1 20

A. The purpose of this section is to set forth the member states' policy for the protection of 21

the confidentiality rights of all participants in the system and of the privacy interests of 22

consumers who deal with Model 1 sellers. 23

B. As used in this section, the term "confidential taxpayer information" means all 24

information that is protected under a member state's laws, regulations, and privileges; the 25

term "personally identifiable information" means information that identifies a person; 26

and the term "anonymous data" means information that does not identify a person. 27

C. The member states agree that a fundamental precept in Model 1 is to preserve the 28

privacy of consumers by protecting their anonymity. With very limited exceptions, a 29


CSP shall perform its tax calculation, remittance, and reporting functions without 1

retaining the personally identifiable information of consumers. 2

D. The governing board may certify a CSP only if that CSP certifies that: 3

1. Its system has been designed and tested to ensure that the fundamental precept of 4

anonymity is respected; 5

2. That personally identifiable information is only used and retained to the extent 6

necessary for the administration of Model 1 with respect to exempt purchasers; 7

3. It provides consumers clear and conspicuous notice of its information practices, 8

including what information it collects, how it collects the information, how it uses the 9

information, how long, if at all, it retains the information and whether it discloses the 10

information to member states. Such notice shall be satisfied by a written privacy 11

policy statement accessible by the public on the official web site of the CSP; 12

4. Its collection, use and retention of personally identifiable information will be limited 13

to that required by the member states to ensure the validity of exemptions from 14

taxation that are claimed by reason of a consumer's status or the intended use of the 15

goods or services purchased; and 16

5. It provides adequate technical, physical, and administrative safeguards so as to 17

protect personally identifiable information from unauthorized access and disclosure. 18

E. Each member state shall provide public notification to consumers, including their exempt 19

purchasers, of the state’s practices relating to the collection, use and retention of 20

personally identifiable information. 21

F. When any personally identifiable information that has been collected and retained is no 22

longer required for the purposes set forth in subsection (D)(4), such information shall no 23

longer be retained by the member states. 24

G. When personally identifiable information regarding an individual is retained by or on 25

behalf of a member state, such state shall provide reasonable access by such individual to 26

his or her own information in the state's possession and a right to correct any inaccurately 27

recorded information. 28

H. If anyone other than a member state, or a person authorized by that state’s law or the 29

Agreement, seeks to discover personally identifiable information, the state from whom 30


the information is sought should make a reasonable and timely effort to notify the 1

individual of such request. 2

I. This privacy policy is subject to enforcement by member states' attorneys general or other 3

appropriate state government authority. 4

J. Each member states' laws and regulations regarding the collection, use, and maintenance 5

of confidential taxpayer information remain fully applicable and binding. Without 6

limitation, the Agreement does not enlarge or limit the member states' authority to: 7

1. Conduct audits or other review as provided under the Agreement and state law. 8

2. Provide records pursuant to a member state's Freedom of Information Act, disclosure 9

laws with governmental agencies, or other regulations. 10

3. Prevent, consistent with state law, disclosures of confidential taxpayer information. 11

4. Prevent, consistent with federal law, disclosures or misuse of federal return 12

information obtained under a disclosure agreement with the Internal Revenue Service. 13

5. Collect, disclose, disseminate, or otherwise use anonymous data for governmental 14

purposes. 15

K. This privacy policy does not preclude the governing board from certifying a CSP whose 16

privacy policy is more protective of confidential taxpayer information or personally 17

identifiable information than is required by the Agreement. 18

19

Section 322: SALES TAX HOLIDAYS 20

A. If a member state allows for temporary exemption periods, commonly referred to as sales 21

tax holidays, the member state shall: 22

1. Not apply an exemption after December 31, 2004, unless the items to be exempted 23

are specifically defined in the Agreement and the exemptions are uniformly applied to 24

state and local sales and use taxes. 25

2. Provide notice of the exemption period at least sixty days’ prior to the first day of the 26

calendar quarter in which the exemption period will begin. 27

B. A member state may establish a sales tax holiday that utilizes price thresholds set 28

by such state and the provisions of the Agreement on the use of thresholds shall 29

not apply to exemptions provided by a state during a sales tax holiday. In order to 30


provide uniformity, a price threshold established by a member state for exempt 1

items shall include only items priced below the threshold. A member state shall 2

not exempt only a portion of the price of an individual item during a sales tax 3

holiday. 4

C. The following procedures are to be used by member states in administering a 5

sales tax holiday exemption: 6

1. Layaway sales - A sale of eligible property under a layaway sale qualifies for 7

exemption if: 8

a. final payment on a layaway order is made by, and the property is given to, 9

the purchaser during the exemption period; or 10

b. the purchaser selects the property and the retailer accepts the order for the 11

item during the exemption period, for immediate delivery upon full 12

payment, even if delivery is made after the exemption period. 13

2. Bundled sales - Member states will follow the same procedure during the sales 14

tax holiday as agreed upon for handling a bundled sale at other times. 15

3. Coupons and discounts - A discount by the seller reduces the sales price of the 16

property and the discounted sales price determines whether the sales price is 17

within a sales tax holiday price threshold of a member state. A coupon that 18

reduces the sales price is treated as a discount if the seller is not reimbursed 19

for the coupon amount by a third-party. If a discount applies to the total 20

amount paid by a purchaser rather than to the sales price of a particular item 21

and the purchaser has purchased both eligible property and taxable property, 22

the seller should allocate the discount based on the total sales prices of the 23

taxable property compared to the total sales prices of all property sold in that 24

same transaction. 25

4. Splitting of items normally sold together - Articles that are normally sold as a 26

single unit must continue to be sold in that manner. Such articles cannot be 27

priced separately and sold as individual items in order to obtain the 28

exemption. For example, a pair of shoes cannot have each shoe sold 29


separately so that the sales price of each shoe is within a sales tax holiday 1

price threshold. 2

5. Rain checks - A rain check allows a customer to purchase an item at a certain 3

price at a later time because the particular item was out of stock. Eligible 4

property that customers purchase during the exemption period with use of a 5

rain check will qualify for the exemption regardless of when the rain check 6

was issued. Issuance of a rain check during the exemption period will not 7

qualify eligible property for the exemption if the property is actually 8

purchased after the exemption period. 9

6. Exchanges - The procedure for an exchange in regards to a sales tax holiday is 10

as follows: 11

a. If a customer purchases an item of eligible property during the exemption 12

period, but later exchanges the item for a similar eligible item, even if a 13

different size, different color, or other feature, no additional tax is due 14

even if the exchange is made after the exemption period. 15

b. If a customer purchases an item of eligible property during the exemption 16

period, but after the exemption period has ended, the customer returns the 17

item and receives credit on the purchase of a different item, the 18

appropriate sales tax is due on the sale of the newly purchased item. 19

c. If a customer purchases an item of eligible property before the exemption 20

period, but during the exemption period the customer returns the item and 21

receives credit on the purchase of a different item of eligible property, no 22

sales tax is due on the sale of the new item if the new item is purchased 23

during the exemption period. 24

7. Delivery charges - Delivery charges, including shipping, handling and service 25

charges, are part of the sales price of eligible property unless a member state 26

defines "sales price" to exclude such charges. For the purpose of determining 27

a sales tax holiday price threshold, if all the property in a shipment qualifies as 28

eligible property and the sales price for each item in the shipment is within the 29

sales tax holiday price threshold, then the seller does not have to allocate the 30


delivery, handling, or service charge to determine if the price threshold is 1

exceeded. The shipment will be considered a sale of eligible products. If the 2

shipment includes eligible property and taxable property (including an eligible 3

item with a sales price in excess of the price threshold), the seller should 4

allocate the delivery charge by using: 5

a. a percentage based on the total sales prices of the taxable property 6

compared to the total sales prices of all property in the shipment; or 7

b. a percentage based on the total weight of the taxable property compared to 8

the total weight of all property in the shipment. 9

The seller must tax the percentage of the delivery charge allocated to the 10

taxable property but does not have to tax the percentage allocated to the 11

eligible property. 12

8. Order date and back orders - For the purpose of a sales tax holiday, eligible 13

property qualifies for exemption if: 14

a. the item is both delivered to and paid for by the customer during the 15

exemption period; or 16

b. the customer orders and pays for the item and the seller accepts the order 17

during the exemption period for immediate shipment, even if delivery is 18

made after the exemption period. The seller accepts an order when the 19

seller has taken action to fill the order for immediate shipment. Actions to 20

fill an order include placement of an "in date" stamp on a mail order or 21

assignment of an "order number" to a telephone order. An order is for 22

immediate shipment when the customer does not request delayed 23

shipment. An order is for immediate shipment notwithstanding that the 24

shipment may be delayed because of a backlog of orders or because stock 25

is currently unavailable to, or on back order by, the seller. 26

9. Returns - For a 60-day period immediately after the sales tax holiday 27

exemption period, when a customer returns an item that would qualify for the 28

exemption, no credit for or refund of sales tax shall be given unless the 29

customer provides a receipt or invoice that shows tax was paid, or the seller 30


has sufficient documentation to show that tax was paid on the specific item. 1

This 60-day period is set solely for the purpose of designating a time period 2

during which the customer must provide documentation that shows that sales 3

tax was paid on returned merchandise. The 60-day period is not intended to 4

change a seller's policy on the time period during which the seller will accept 5

returns. 6

10. Different time zones - The time zone of the seller's location determines the authorized 7

time period for a sales tax holiday when the purchaser is located in one time zone and 8

a seller is located in another. 9

10

Section 323: CAPS AND THRESHOLDS 11

A. Each member state shall: 12

1. Not have caps or thresholds on the application of state sales or use tax rates or 13

exemptions that are based on the value of the transaction or item after December 31, 14

2005. A member state may continue to have caps and thresholds until that date. 15

2. Not have caps that are based on the application of the rates unless the member state 16

assumes the administrative responsibility in a manner that places no additional burden 17

on the retailer. 18

B. Each member state that has local jurisdictions that levy a sales or use tax shall not place 19

caps or thresholds on the application of local rates or use tax rates or exemptions that are 20

based on the value of the transaction or item after December 31, 2005. A member state 21

may continue to have caps and thresholds until that date. 22

C. The provisions of this section do not apply to sales or use taxes levied on the retail sale or 23

transfer of motor vehicles, aircraft, watercraft, modular homes, manufactured homes, or 24

mobile homes or to instances where the burden of administration has been shifted from 25

the retailer. 26

27

Section 324: ROUNDING RULE 28

A. After December 31, 2005, each member state shall adopt a rounding algorithm that meets 29

the following criteria: 30


1. Tax computation must be carried to the third decimal place, and 1

2. The tax must be rounded to a whole cent using a method that rounds up to the next 2

cent whenever the third decimal place is greater than four. 3

B. Each state shall allow sellers to elect to compute the tax due on a transaction on an item 4

or an invoice basis, and shall allow the rounding rule to be applied to the aggregated state 5

and local taxes. No member state shall require a seller to collect tax based on a bracket 6

system. 7

8

Section 325: CUSTOMER REFUND PROCEDURES 9

A. These customer refund procedures are provided to apply when a state allows a purchaser 10

to seek a return of over-collected sales or use taxes from the seller. 11

B. Nothing in this section shall either require a state to provide, or prevent a state from 12

providing, a procedure by which a purchaser may seek a refund directly from the state 13

arising out of sales or use taxes collected in error by a seller from the purchaser. 14

Nothing in this section shall operate to extend any person's time to seek a refund of sales 15

or use taxes collected or remitted in error. 16

C. These customer refund procedures provide the first course of remedy available to 17

purchasers seeking a return of over-collected sales or use taxes from the seller. A cause 18

of action against the seller for the over-collected sales or use taxes does not accrue until 19

a purchaser has provided written notice to a seller and the seller has had sixty days to 20

respond. Such notice to the seller must contain the information necessary to determine 21

the validity of the request. 22

D. In connection with a purchaser's request from a seller of over-collected sales or use 23

taxes, a seller shall be presumed to have a reasonable business practice, if in the 24

collection of such sales or use taxes, the seller: i) uses either a provider or a system, 25

including a proprietary system, that is certified by the state; and ii) has remitted to the 26

state all taxes collected less any deductions, credits, or collection allowances. 27

28

29

30


Section 326: DIRECT PAY PERMITS 1

Each member state shall provide for a direct pay authority that allows the holder of a direct pay 2

permit to purchase otherwise taxable goods and services without payment of tax to the supplier 3

at the time of purchase. The holder of the direct pay permit will make a determination of the 4

taxability and then report and pay the applicable tax due directly to the tax jurisdiction. Each 5

state can set its own limits and requirements for the direct pay permit. The governing board shall 6

advise member states when setting state direct pay limits and requirements, and shall consider 7

use of the Model Direct Payment Permit Regulation as developed by the Task Force on EDI 8

Audit and Legal Issues for Tax Administration. 9

10

Section 327: LIBRARY OF DEFINITIONS 11

Each member state shall utilize common definitions as provided in this section. The terms 12

defined are set out in the Library of Definitions, in Appendix C of this Agreement. A member 13

state shall adhere to the following principles: 14

A. If a term defined in the Library of Definitions appears in a member state’s sales 15

and use tax statutes or administrative rules or regulations, the member state shall 16

enact or adopt the Library definition of the term in its statutes or administrative 17

rules or regulations in substantially the same language as the Library definition. 18

B. A member state shall not use a Library definition in its sales or use tax statutes or 19

administrative rules or regulations that is contrary to the meaning of the Library 20

definition. 21

C. Except as specifically provided in Section 316 and the Library of Definitions, a 22

member state shall impose a sales or use tax on all products or services included 23

within each definition or exempt from sales or use tax all products or services 24

within each definition. 25

Compiler’s note: The Governing Board issued an interpretation of Section 327C on August 29, 2006. That 26


28

29

30


Section 328: TAXABILITY MATRIX 1

A. To ensure uniform application of terms defined in the Library of Definitions each 2

member state shall complete a taxability matrix adopted by the governing board. 3

The member state’s entries in the matrix shall be provided and maintained in a 4

database that is in a downloadable format approved by the governing board. A 5

member state shall provide notice of changes in the taxability of the products or 6

services listed in the taxability matrix as required by the governing board. 7

B. A member state shall relieve sellers and CSPs from liability to the member state and 8

its local jurisdictions for having charged and collected the incorrect amount of sales 9

or use tax resulting from the seller or CSP relying on erroneous data provided by the 10

member state in the taxability matrix. 11

12

Section 329: EFFECTIVE DATE FOR RATE CHANGES 13

Each member state shall provide that the effective date of rate changes for services covering a 14

period starting before and ending after the statutory effective date shall be as follows: 15

A. For a rate increase, the new rate shall apply to the first billing period starting on or after 16

the effective date. 17

B. For a rate decrease, the new rate shall apply to bills rendered on or after the effective 18

date. 19

20

Section 330: BUNDLED TRANSACTIONS (Effective on and after January 1, 2008) 21

A. A member state shall adopt and utilize to determine tax treatment, the core definition for 22

a “bundled transaction” in Appendix C, Part I of the Library of Definitions in the 23

Agreement. 24

B. Member states are not restricted in their tax treatment of bundled transactions except as 25

otherwise provided in the Agreement. Member states are not restricted in their ability to 26

treat some bundled transactions differently from other bundled transactions. 27

C. In the case of a bundled transaction that includes any of the following: 28

telecommunication service, ancillary service, internet access, or audio or video 29

programming service: 30


1. If the price is attributable to products that are taxable and products that are 1

nontaxable, the portion of the price attributable to the nontaxable products may be 2

subject to tax unless the provider can identify by reasonable and verifiable 3

standards such portion from its books and records that are kept in the regular 4

course of business for other purposes, including, but not limited to, non-tax 5

purposes. 6

2. If the price is attributable to products that are subject to tax at different tax rates, 7

the total price may be treated as attributable to the products subject to tax at the 8

highest tax rate unless the provider can identify by reasonable and verifiable 9

standards the portion of the price attributable to the products subject to tax at the 10

lower rate from its books and records that are kept in the regular course of 11

business for other purposes, including, but not limited to, non-tax purposes. 12

3. The provisions of this section shall apply unless otherwise provided by federal 13

law. 14

Compiler’s note: Section 330 was added on April 16, 2005. Member States shall comply with the provisions of this 15

Section no later than January 1, 2008. 16

17

Section 331: RELIEF FROM CERTAIN LIABILITY FOR PURCHASERS (Effective on 18 and after January 1, 2009) 19 20 A. A member state shall relieve a purchaser from liability for penalty to that member state 21

and its local jurisdictions for having failed to pay the correct amount of sales or use tax in 22

the following circumstances: 23

1. A purchaser’s seller or CSP relied on erroneous data provided by that member 24

state on tax rates, boundaries, taxing jurisdiction assignments, or in the taxability 25

matrix completed by that member state pursuant to Section 328; or 26

2. A purchaser holding a direct pay permit relied on erroneous data provided by that 27

member state on tax rates, boundaries, taxing jurisdiction assignments, or in the 28

taxability matrix completed by that member state pursuant to Section 328. 29

3. A purchaser relied on erroneous data provided by that member state in the 30

taxability matrix completed by that member state pursuant to Section 328. 31


4. A purchaser using databases pursuant to subsections (F), (G) and (H) of Section 1

305 relied on erroneous data provided by that member state on tax rates, 2

boundaries, or taxing jurisdiction assignments. After providing adequate notice as 3

determined by the governing board, a member state that provides an address-4

based database for assigning taxing jurisdictions pursuant to Section 305, 5

subsection (G) or (H) may cease providing liability relief for errors resulting from 6

the reliance on the database provided by the member state under the provisions of 7

Section 305, subsection (F). 8

B. Except where prohibited by a member state’s constitution, a member state shall also 9

relieve a purchaser from liability for tax and interest to that member state and its local 10

jurisdictions for having failed to pay the correct amount of sales or use tax in the 11

circumstances described in Section 331 A, provided that, with respect to reliance on the 12

taxability matrix completed by that member state pursuant to Section 328, such relief is 13

limited to the state’s erroneous classification in the taxability matrix of terms included in 14

the Library of Definitions as “taxable” or “exempt,” “included in sales price” or 15

“excluded from sales price” or “included in the definition” or “excluded from the 16

definition”. 17

C. For purposes of this section, the term “penalty” means an amount imposed for 18

noncompliance that is not fraudulent, willful, or intentional which is in addition to the 19

correct amount of sales or use tax and interest. 20

D. A member state may allow relief on terms and conditions more favorable to a purchaser 21

than the terms required by this section. 22

E. The provisions of this section are effective on and after January 1, 2009, however, to the 23

extent any relief under this section does not require a legislative change in a member state, such 24

relief must be granted effective immediately. 25

Compiler’s note: Section 331 was added on August 29, 2006. Member States shall comply with the provisions of 26

this Section no later than January 1, 2009. 27

Compiler’s note: On December 14, 2006 Section 331 was amended by inserting “provided that” in lieu of “except” 28

after “Section 331 A,” and to add the clause following “Section 328” in B, and by adding the clause starting with 29

“however” in E. 30


ARTICLE IV 1

SELLER REGISTRATION 2

3

Section 401: SELLER PARTICIPATION 4

A. The member states shall provide an online registration system that will allow sellers to 5

register in all the member states. 6

B. By registering, the seller agrees to collect and remit sales and use taxes for all taxable 7

sales into the member states, including member states joining after the seller's 8

registration. Withdrawal or revocation of a member state shall not relieve a seller of its 9

responsibility to remit taxes previously or subsequently collected on behalf of the state. 10

C. In member states where the seller has a requirement to register prior to registering under 11

the Agreement, the seller may be required to provide additional information to complete 12

the registration process or the seller may choose to register directly with those states. 13

D. A member state or a state that has withdrawn or been expelled shall not use registration 14

with the central registration system and the collection of sales and use taxes in the 15

member states as a factor in determining whether the seller has nexus with that state for 16

any tax at any time. 17

18

Section 402: AMNESTY FOR REGISTRATION 19

A. Subject to the limitations in this section: 20

1. A member state shall provide amnesty for uncollected or unpaid sales or use tax to a 21

seller who registers to pay or to collect and remit applicable sales or use tax on sales 22

made to purchasers in the state in accordance with the terms of the Agreement, 23

provided that the seller was not so registered in that state in the twelve-month period 24

preceding the effective date of the state's participation in the Agreement. 25

2. The amnesty will preclude assessment for uncollected or unpaid sales or use tax 26

together with penalty or interest for sales made during the period the seller was not 27

registered in the state, provided registration occurs within twelve months of the 28

effective date of the state's participation in the Agreement. 29


3. Amnesty similarly shall be provided by any additional state that joins the Agreement 1

after the seller has registered. 2

B. The amnesty is not available to a seller with respect to any matter or matters for which 3

the seller received notice of the commencement of an audit and which audit is not yet 4

finally resolved including any related administrative and judicial processes. 5

C. The amnesty is not available for sales or use taxes already paid or remitted to the state or 6

to taxes collected by the seller. 7

D. The amnesty is fully effective, absent the seller's fraud or intentional misrepresentation of 8

a material fact, as long as the seller continues registration and continues payment or 9

collection and remittance of applicable sales or use taxes for a period of at least thirty-six 10

months. Each member state shall toll its statute of limitations applicable to asserting a 11

tax liability during this thirty-six month period. 12

E. The amnesty is applicable only to sales or use taxes due from a seller in its capacity as a 13

seller and not to sales or use taxes due from a seller in its capacity as a buyer. 14

F. A member state may allow amnesty on terms and conditions more favorable to a seller 15

than the terms required by this section. 16

Compiler’s note: The Governing Board issued interpretations of Section 402B and 402C on April 18, 2006. Those 17

interpretations can be found in the Library of Interpretation. The Governing Board issued an interpretation of 18

Section 402 on August 29, 2006. That interpretation can be found in the Library of Interpretations. The Governing 19

Board issued two interpretations of Section 402 on December 14, 2006. Those interpretations can be found in the 20

Library of Interpretations. 21

22

Section 403: METHOD OF REMITTANCE 23

When registering, the seller may select one of the following methods of remittances or other 24

method allowed by state law to remit the taxes collected: 25

A. MODEL 1, wherein a seller selects a CSP as an agent to perform all the seller's sales or 26

use tax functions, other than the seller's obligation to remit tax on its own purchases. 27

B. MODEL 2, wherein a seller selects a CAS to use which calculates the amount of tax due 28

on a transaction. 29

C. MODEL 3, wherein a seller utilizes its own proprietary automated sales tax system that 30

has been certified as a CAS. 31


1

Section 404: REGISTRATION BY AN AGENT 2

A seller may be registered by an agent. Such appointment shall be in writing and submitted to a 3

member state if requested by the member state. 4


ARTICLE V 1

PROVIDER AND SYSTEM CERTIFICATION 2

3

Section 501: CERTIFICATION OF SERVICE PROVIDERS AND AUTOMATED 4

SYSTEMS 5

A. The governing board shall certify automated systems and service providers to aid in the 6

administration of sale and use tax collections. 7

B. The governing board may certify a person as a CSP if the person meets all of the 8

following requirements: 9

1. The person uses a CAS; 10

2. The person integrates its CAS with the system of a seller for whom the person 11

collects tax so that the tax due on a sale is determined at the time of the sale; 12

3. The person agrees to remit the taxes it collects at the time and in the manner specified 13

by the member states; 14

4. The person agrees to file returns on behalf of the sellers for whom it collects tax; 15

5. The person agrees to protect the privacy of tax information it obtains in accordance 16

with Section 321 of the Agreement; and 17

6. The person enters into a contract with the member states and agrees to comply with 18

the terms of the contract. 19

C. The governing board may certify a software program as a CAS if the governing board 20

determines that the program meets all of the following requirements: 21

1. It determines the applicable state and local sales and use tax rate for a transaction, in 22

accordance with Sections 309 to 315, inclusive; 23

2. It determines whether or not an item is exempt from tax; 24

3. It determines the amount of tax to be remitted for each taxpayer for a reporting 25

period; 26

4. It can generate reports and returns as required by the governing board; and 27

5. It can meet any other requirement set by the governing board. 28

D. The governing board may establish one or more sales tax performance standards for 29

Model 3 sellers that meet the eligibility criteria set by the governing board and that 30


developed a proprietary system to determine the amount of sales and use tax due on 1

transactions. 2

3

Section 502: STATE REVIEW AND APPROVAL OF CERTIFIED AUTOMATED 4

SYSTEM SOFTWARE AND CERTAIN LIABILITY RELIEF (Effective on and after 5

January 1, 2008) 6

A. Each member state shall review software submitted to the governing board for 7

certification as a CAS under Section 501. Such review shall include a review to 8

determine that the program accurately reflects the taxability of the product categories 9

included in the program. Upon approval by the state, the state shall certify to the 10

governing board its acceptance of the determination of the taxability of the product 11

categories included in the program. 12

B. Each member state shall relieve CSPs and model 2 sellers from liability to the member 13

state and local jurisdictions for not collecting sales or use taxes resulting from the CSP or 14

model 2 seller relying on the certification provided by the member state. 15

C. Each member state shall provide relief from liability to CSPs for not collecting sales and 16

use taxes in the same manner as provided to sellers under the provisions of section 317. 17

D. The governing board and the member states shall not be responsible for classification of 18

an item or transaction within the product categories certified. The relief from liability 19

provided in this section shall not be available for a CSP or model 2 seller that has 20

incorrectly classified an item or transaction into a product category certified by a member 21

state. This paragraph shall not apply to the individual listing of items or transactions 22

within a product definition approved by the governing board or the member states. 23

E. If a member state determines that an item or transaction is incorrectly classified as to its 24

taxability, it shall notify the CSP or model 2 seller of the incorrect classification. The 25

CSP or model 2 seller shall have ten (10) days to revise the classification after receipt of 26

notice from the member state of the determination. Upon expiration of the ten (10) days, 27

CSP or model 2 seller shall be liable for the failure to collect the correct amount of sales 28

or use taxes due and owing to the member state. 29


Compiler’s note: Section 502 was added on January 13, 2006. Member States shall comply with the provisions of 1

this Section no later than January 1, 2008. 2

Compiler’s note: On June 23, 2007 subsections A and D were amended as follows: 3

A. Each member state shall review software submitted to the governing board for certification as a 4

CAS under Section 501. Such review shall include a review to determine that the program 5

adequately classifies the state’s product-based exemptions accurately reflects the taxability of the 6

product categories included in the program. Upon completion of the review approval by the state, 7

the state shall certify to the governing board its acceptance of the classifications made by the 8

system determination of the taxability of the product categories included in the program. 9

D. The governing board and the member states shall not be responsible for classification of an item 10

or transaction within the product-based exemptions product categories certified. The relief from 11

liability provided in this section shall not be available for a CSP or model 2 seller that has 12

incorrectly classified an item or transaction into a product-based exemption product category 13

certified by a member state. This paragraph shall not apply to the individual listing of items or 14

transactions within a product definition approved by the governing board or the member states. 15


ARTICLE VI 1

MONETARY ALLOWANCES FOR NEW TECHNOLOGICAL MODELS FOR SALES 2

TAX COLLECTION 3

4

Section 601: MONETARY ALLOWANCE UNDER MODEL 1 5

A. Each member state shall provide a monetary allowance to a CSP in Model 1 in 6

accordance with the terms of the contract between the governing board and the CSP. The 7

details of the monetary allowance will be provided through the contract process. The 8

governing board shall require that such allowance be funded entirely from money 9

collected in Model 1. 10

B. The contract between the governing board and a CSP may base the monetary allowance 11

to a CSP on one or more of the following: 12

1. A base rate that applies to taxable transactions processed by the CSP. 13

2. For a period not to exceed twenty-four months following a voluntary seller's 14

registration through the Agreement's central registration process, a percentage of tax 15

revenue generated for a member state by the voluntary seller for each member state 16

for which the seller does not have a requirement to register to collect the tax. 17

18

Section 602: MONETARY ALLOWANCE FOR MODEL 2 SELLERS 19

The member states initially anticipate that they will provide a monetary allowance to sellers 20

under Model 2 based on the following: 21

A. All sellers shall receive a base rate for a period not to exceed twenty-four months 22

following the commencement of participation by a seller. The base rate will be set after 23

the base rate has been established for Model 1. This allowance will be in addition to any 24

discount afforded by each member state at the time. 25

B. The member states anticipate a monetary allowance to a Model 2 Seller based on the 26

following: 27

1. For a period not to exceed twenty-four months following a voluntary seller's 28

registration through the Agreement's central registration process, a percentage of tax 29


revenue generated for a member state by the voluntary seller for each member state 1

for which the seller does not have a requirement to register to collect the tax. 2

2. Following the conclusion of the twenty-four month period, a seller will only be 3

entitled to a vendor discount afforded under each member state's law at the time the 4

base rate expires. 5

6

Section 603: MONETARY ALLOWANCE FOR MODEL 3 SELLERS AND ALL OTHER 7

SELLERS THAT ARE NOT UNDER MODELS 1 OR 2 8

The member states anticipate that they will provide a monetary allowance to sellers under Model 9

3 and to all other sellers that are not under Models 1 or 2 based on the following: 10

A. For a period not to exceed twenty-four months following a voluntary seller's registration 11

through the Agreement's central registration process, a percentage of tax revenue 12

generated for a member state by the voluntary seller for each member state for which the 13

seller does not have a requirement to register to collect the tax. 14

B. Vendor discounts afforded under each member state's law. 15


ARTICLE VII 1

AGREEMENT ORGANIZATION 2

3

Section 701: EFFECTIVE DATE 4

The Agreement shall become binding and take effect when at least ten states comprising at least twenty 5

percent of the total population, as determined by the 2000 Federal census, of all states imposing a state 6

sales tax as of October 1, 2005 have petitioned for membership and have either been found to be in 7

compliance with the requirements of the Agreement pursuant to Section 805 or have been found to be an 8

associate member pursuant to Section 704. The Agreement shall take effect on the first day of a 9

calendar quarter at least sixty days after the tenth state is found in compliance or is found to be an 10

associate member. 11

Compiler’s note: On April 16, 2005 Section 701 was amended by inserting “either” after “and have” in the first sentence; 12

inserting “or have been found to be an associate member pursuant to Section 704” at the end of the first sentence; and 13

deleting “, but cannot take effect prior to July 1, 2003” and inserting “or is found to be an associate member” at the end of 14

the second sentence. The April 16, 2005 amendments to this section were effective upon adoption. 15

On April 18, 2006 Section 701 was amended by inserting “as of October 1, 2005” after “sales tax.” The April 18, 2006 16

amendment to this section was effective upon adoption. 17

18

Section 702: APPROVAL OF INITIAL STATES 19

Prior to the effective date of the Agreement, a state may seek membership by forwarding a petition for 20

membership and certificate of compliance to the Co-Chairs of the Streamlined Sales Tax Implementing 21

States. The certificate of compliance shall meet the requirements of Section 802. If some changes to a 22

state’s statutes, rules, regulations, or other authorities have been adopted, but are not yet in effect, the 23

petition for membership shall include the date on which those changes will be effective. A petitioning 24

state shall also provide a copy of its petition for membership and certificate of compliance to each of the 25

Streamlined Sales Tax Implementing States. A petitioning state shall also post a copy of its petition for 26

membership and certificate of compliance on that state’s web site. 27

28

Upon receipt of the requisite number of petitions as provided in Section 701, the Co-Chairs shall 29

convene and preside over a meeting of the petitioning states for the purpose of determining if the 30

petitioning states are in compliance with the Agreement. The meeting shall be convened as soon as 31


practicable after receipt of the requisite number of petitions provided in Section 701. An affirmative 1

vote of three-fourths of the other petitioning states is necessary for a petitioning state to be found in 2

compliance with the Agreement. A petitioning state shall not vote on its own petition for membership. 3

4

The Co-Chairs shall provide the public with an opportunity to comment prior to any vote on a state’s 5

petition for membership. 6

Compiler’s note: On April 16, 2005 this section was amended by deleting “that has adopted changes to its statutes, rules, 7

regulations, or other authorities necessary to bring a state into compliance as provided in Section 805,” after “a state” in 8

the first sentence; inserting the second sentence; inserting “to a state’s statutes, rules, regulations, or other authorities” after 9

“changes” in the third sentence; and deleting “, but shall not be earlier than the date the relevant statutes, rules, regulations, 10

or other authorities of the requisite number of petitioning states are effective” after “Section 701” in the second sentence in 11

the second paragraph. The April 16, 2005 amendments to this section were effective upon adoption. 12

13

Section 703: STREAMLINED SALES TAX IMPLEMENTING STATES 14

A. From the time of ratification of this Agreement until the provisions of Section 701 have been met, the 15

Streamlined Sales Tax Implementing States shall maintain responsibility for the Agreement, including 16

the disposition of all proposed amendments to the Agreement. If the provisions of Section 701 have 17

been met with the use of associate members as defined in Section 704, the Streamlined Sales Tax 18

Implementing States shall be responsible for the disposition of all proposed amendments to and 19

interpretations of the Agreement until such time as the provisions of Section 701 have been met without 20

the use of associate members. 21

22

B. Amendments to the Agreement considered by the Streamlined Sales Tax Implementing States shall 23

follow the provisions as set forth in Article IX, Section 901. 24

25

C. For a period of not less than six months nor longer than one year after the provisions of Section 701 26

are met without the use of associate members, the Streamlined Sales Tax Implementing States shall 27

provide advice to the Governing Board of the Agreement and shall be consulted by the Governing Board 28

before amending the Agreement. 29


D. Upon the expiration of the duties of the Streamlined Sales Tax Implementing States as set forth in 1

subsection C, any state that previously held Implementing State status shall become an Advisor State to 2

the Governing Board. 3

1. Advisor States shall serve in an ex officio capacity on the Governing Board, with non-4

voting status, but may speak to any matter presented to the Governing Board for 5

consideration. 6

2. Each State’s delegation to the Streamlined Sales Tax Implementing States may serve as 7

the state’s delegation to the Governing Board as established herein or the state may 8

appoint a new delegation, of up to four representatives, who shall be members of state or 9

local government. 10

3. Representatives of Advisor States may serve on standing committees of the Governing 11

Board except they may not serve as officers or directors on the Executive Committee or 12

as members on the Finance Committee or the Compliance Review and Interpretations 13

Committee. 14

4. A state that was not previously an Implementing State may become an Advisor State by: 15

a. Enacting legislation authorizing the state’s participation in interstate discussions to 16

develop a simplified sales and use tax system; or 17

b. Executing a memorandum of understanding or similar written document by the 18

governor and legislative leaders expressing the intent of the state to participate in 19

interstate discussions to develop a simplified sales and use tax system. 20

Any question over whether or not a state qualifies as an Advisor State shall be resolved 21

by a majority vote of the Governing Board. 22

5. Neither the Governing Board nor a Member State may share or grant any Advisor State 23

access to any seller information from the seller's registration pursuant to Section 401. 24

Neither the Governing Board nor a Member State may share or grant any Advisor State 25

access to any seller information from an audit conducted by the Governing Board or a 26

Member State on behalf of the Governing Board. 27

6. An Advisor State may not participate in a closed session of the Governing Board or a 28

Governing Board committee. 29


Compiler’s note: On April 16, 2005 Section 703 was amended by inserting the second sentence in 703 (A) and inserting 1

“without the use of associate members” after “are met” in 703 (C). The April 16, 2005 amendments to this section were 2

effective upon adoption. On August 29, 2006 Section 703 was amended by inserting subsection D. The August 29, 2006 3

amendment to this section was effective upon adoption. 4

5

Section 704: CONSIDERATION OF PETITIONS 6

A. A petitioning state that is found to be in compliance pursuant to Section 805 of the Agreement 7

and the changes to their statutes, rules, regulations or other authorities necessary to bring them 8

into compliance are in effect shall be designated a Member State. 9

10

B. A petitioning state that is found to be in compliance pursuant to Section 805 of the Agreement 11

and the changes to their statutes, rules, regulations or other authorities necessary to bring them 12

into compliance are not in effect, but are scheduled to take effect on or before January 1, 2008, 13

shall be designated an associate member. Provided the statutes, rules, regulations or other 14

authorities remain in effect, the state shall automatically become a Member State upon the 15

effective date of the conforming legislation. 16

17

C. A petitioning state that fails to receive an affirmative vote of three-fourths of the petitioning 18

states as required under Section 702 may request associate membership. If such a request is 19

made, the Petitioning States may grant such membership by majority vote upon a finding that the 20

state has achieved substantial compliance with the terms of the Agreement taken as a whole, but 21

not necessarily each provision as required by Section 805, measured qualitatively, and there is a 22

reasonable expectation that the state will achieve compliance by January 1, 2008. A state that is 23

granted associate membership by this section shall be required to re-petition for full membership 24

under the requirements of the Agreement. 25

Compiler’s note: On April 16, 2005 Section 704 was added and was effective upon adoption. 26

27

Section 705: ASSOCIATE MEMBERSHIP 28

A. An associate member shall have all the rights and privileges of a member state except that: 29

1. An associate member may not vote on amendments to or interpretations of the Agreement when 30

the provisions of Section 701 have been met without the use of associate members; and 31


2. An associate member may not vote to determine if a petitioning state is in compliance with the 1

Agreement pursuant to Section 804 of the Agreement. 2

3. A representative of an associate member state shall not be eligible to serve on the compliance 3

review and interpretations committee. 4

5

B. A state which is an associate member on January 1, 2007, shall retain such status until the 6

Governing Board finds such state to be in compliance pursuant to Section 805 or December 31, 2007, 7

whichever is earlier, without regard to whether the population requirement of Section 701 has been met. 8

Any such associate member that has not been found in compliance by December 31, 2007 shall forfeit 9

its status as an associate member. The president of the governing board shall provide an associate 10

member state with the reasons why such state is not in compliance with the Agreement. Forfeiture of its 11

status as an associate member does not preclude a state from re-petitioning for membership pursuant to 12

Section 801. 13

14

C. Notwithstanding any provision of this Agreement to the contrary, a seller may, but is not 15

required to collect sales or use tax on sales into an associate member state unless the seller is otherwise 16

required to collect such taxes under applicable law. Notwithstanding the provisions of Section 401 (B), 17

a seller that volunteers to collect tax in an associate member state is not required to collect tax in any 18

other associate member state. An associate member shall be responsible for payment of costs as 19

provided in Article VI for those sellers that volunteer to collect tax in an associate member state. 20

21

D. Neither the Governing Board nor a member state may share or grant access to an associate 22

member state any seller information from the seller's registration pursuant to Section 401. Neither the 23

Governing Board nor a member state may share or grant access to an associate member state any seller 24

information from an audit conducted by the Governing Board or a member state on behalf of the 25

Governing Board unless the associate member state is a party to the audit. 26

27

E. An associate member shall be responsible for the payment of the petition fee and the annual cost 28

allocation as determined by the Streamlined Sales Tax Implementing States or Governing Board. 29

30


F. An associate member state shall provide amnesty pursuant to the provisions of Section 402, 1

provided, the amnesty shall be in effect from the date the associate member status is attained until 12 2

months after the associate member state becomes a full member state. 3

Compiler’s note: On April 16, 2005 Section 705 was added and was effective upon adoption. 4

Compiler’s note: On June 23, 2007 Section 705 was amended as follows: 5

“A. An associate member shall have all the rights and privileges of a member state except that: 6

1. An associate member may not vote on amendments to or interpretations of the Agreement when the provisions of 7

Section 701 have been met without the use of associate members; and 8

2. An associate member may not vote to determine if a petitioning state is in compliance with the Agreement pursuant 9

to Section 804 of the Agreement. Associate members may vote on amendments to or interpretations of the Agreement as an 10

Implementing State under Section 703 (A). 11

3. A representative of an associate member state shall not be eligible to serve on the compliance review and 12

interpretations committee. 13

B. An associate member A state which is an associate member on January 1, 2007, shall retain such status until the 14

Governing Board finds such state to be in compliance pursuant to Section 805 or December 31, 2007, whichever is earlier, 15

without regard to whether the population requirement of Section 701 has been met. Any such associate member that has not 16

been found in compliance by December 31, 2007 shall forfeit its status as an associate member. No state may be an 17

associate member after December 31, 2007. The Co-Chairs of the Streamlined Sales Tax Implementing States president of 18

the governing board shall provide an associate member state with the reasons why such state is not in compliance with the 19

Agreement. Forfeiture of its status as an associate member does not preclude a state from re-petitioning for membership 20

pursuant to Section 801. 21

F. An associate member state shall provide amnesty pursuant to the provisions of Section 402, provided, the amnesty shall be 22

in effect from the date the associate member status is attained until 12 months after the associate member state has been 23

found to be in compliance with the Agreement becomes a full member state.” 24

The June 23, 2007 amendments became effective upon their adoption. 25


1

ARTICLE VIII 2

STATE ENTRY AND WITHDRAWAL 3

4

Section 801: ENTRY INTO AGREEMENT 5

A. After the effective date of the Agreement, a state may apply to become a party to the Agreement 6

by submitting a petition for membership and certificate of compliance to the governing board. The 7

petition for membership shall include such state’s proposed date of entry. The petitioning state’s 8

proposed date of entry shall be on the first day of a calendar quarter. The proposed date of entry shall be 9

a date on which all provisions necessary for the state to be in compliance with the Agreement are in 10

place and effective. 11

12

B. The petitioning state shall provide a copy of its petition for membership and the certificate of 13

compliance to each member state when the petitioning state submits its petition for membership to the 14

governing board. A petitioning state shall also post a copy of its petition for membership and certificate 15

of compliance on that state’s web site. 16

17

C. A state that petitions for membership after January 1, 2007, that is found to be in 18

compliance pursuant to Sections 804 and 805 of the Agreement except that the changes to their 19

statutes, rules, regulations or other authorities necessary to bring them into compliance are not 20

yet in effect, shall be designated an associate member effective on the first day of the calendar 21

quarter that is not more than twelve months before its proposed date of entry as a member state. 22

Such twelve month period may be extended to eighteen months if the governing board, by 23

unanimous vote approves such extension. Such extension shall be granted only if the petitioning 24

state can present adequate justification of the necessity for the future effective date and that the 25

application of the future effective date beyond twelve months is limited to the provisions of the 26

law for which such necessity is demonstrated. Such states shall be subject to the annual 27

recertification requirement set forth in Section 803 of this Agreement for all issues other than the 28

delayed effective date issues identified at the time the state becomes an associate member. 29

Extensions of effective date delays beyond those identified at the time the state becomes an 30


associate member shall require the state to submit a statement of non-compliance pursuant to 1

Section 803. Provided the statues, rules, regulations or other authorities remain in effect, the 2

state shall automatically become a member state on the state’s proposed date of entry. 3

4

D. A state which becomes an associate member after January 1, 2007 shall forfeit its status as an 5

associate member on the date provided for compliance pursuant to subsection C of this section, if the 6

state’s laws are not in compliance at that time. A state that forfeits its status as an associate member 7

because it has extended its effective date for required law changes beyond the date set forth in its 8

petition for membership may not file another petition for membership for a period of twelve months 9

after such state forfeits its status as an associate member. 10

Compiler’s note: On June 23, 2007 subsections A and B were numbered and subsections C and D were added. These 11

changes became effective upon their adoption. 12

13

Section 802: CERTIFICATE OF COMPLIANCE 14

The certificate of compliance shall be signed by the chief executive of the state’s tax agency. The 15

certificate of compliance shall document compliance with the provisions of the Agreement and cite 16

applicable statutes, rules, regulations, or other authorities evidencing such compliance. 17

18

Section 803: ANNUAL RE-CERTIFICATION OF MEMBER STATES 19

Each member state shall annually re-certify that such state is in compliance with the Agreement. Each 20

member state shall make a re-certification to the governing board on or before August 1 of each year 21

after the year of the state’s entry. In its annual re-certification, the state shall include any changes in its 22

statutes, rules, regulations, or other authorities that could affect its compliance with the terms of the 23

Agreement. The re-certification shall be signed by the chief executive of the state’s tax agency. 24

25

A member state that cannot re-certify its compliance with the Agreement shall submit a statement of 26

non-compliance to the governing board. The statement of non-compliance shall include any action or 27

decision that takes such state out of compliance with the Agreement and the steps it will take to return to 28

compliance. The governing board shall promulgate rules and procedures to respond to statements of 29

noncompliance in accordance with Section 809. 30


1

Each member state shall post its annual re-certification or statement of non-compliance on that state’s 2

web site. 3

4

Section 804: REQUIREMENTS FOR MEMBERSHIP APPROVAL 5

The governing board shall determine if a petitioning state is in compliance with the Agreement. A 6

three-fourths vote of the entire governing board is required to approve a state’s petition for membership. 7

The governing board shall provide public notice and opportunity for comment prior to voting on a 8

state’s petition for membership. A state’s membership is effective on the proposed date of entry in its 9

petition for membership or the first day of the calendar quarter after its petition is approved by the 10

governing board, whichever is later, and is at least sixty days after its petition is approved. 11

12

Section 805: COMPLIANCE 13

A state is in compliance with the Agreement if the effect of the state’s laws, rules, regulations, and 14

policies is substantially compliant with each of the requirements set forth in the Agreement. 15

16

Section 806: AGREEMENT ADMINISTRATION 17

Authority to administer the Agreement shall rest with the governing board comprised of representatives 18

of each member state. Each member state may appoint up to four representatives to the governing 19

board. The representatives shall be members of the executive or legislative branches of the state. Each 20

member state shall be entitled to one vote on the governing board. Except as otherwise provided in the 21

Agreement, all actions taken by the governing board shall require an affirmative vote of a majority of 22

the governing board present and voting. The governing board shall determine its meeting schedule, but 23

shall meet at least once annually. The governing board shall provide a public comment period at each 24

meeting to provide members of the public an opportunity to address the board on matters relevant to the 25

administration or operation of the Agreement. The governing board shall provide public notice of its 26

meetings at least thirty days in advance of such meetings. The governing board shall promulgate rules 27

establishing the public notice requirements for holding emergency meetings on less than thirty day’s 28

notice. The governing board may meet electronically. 29

30


The governing board is responsible for the administration and operation of the Agreement, including the 1

appointment of all manner of committees. The governing board may employ staff, advisors, consultants 2

or agents. The governing board may issue interpretive opinions and promulgate such rules it deems 3

necessary to carry out its responsibilities. Rules may take one of two forms: procedural rules, which 4

shall require an affirmative vote of a majority of the governing board present and voting to adopt; and 5

interpretative rules which shall require an affirmative vote of three-fourths of the entire governing board 6

to adopt. The governing board may take any action that is necessary and proper to fulfill the purposes of 7

the Agreement. The governing board may allocate the cost of administration of the Agreement among 8

the member states. 9

10

The governing board may assign committees certain duties, including, but not limited to: 11

A. Responding to questions regarding the administration of the Agreement; 12

B. Preparing certification requirements and coordinating the certification process for CSPs; 13

C. Coordinating joint audits; 14

D. Issuing requests for proposals; 15

E. Coordinating contracts with member states and providers; and 16

F. Maintaining records for the governing board. 17

Compiler’s note: On August 29, 2006 the second paragraph of Section 806 was amended as follows: 18

“The governing board is responsible for the administration and operation of the Agreement, including the appointment of all 19

manner of committees. The governing board may employ staff, advisors, consultants or agents. The governing board may 20

issue interpretive opinions and promulgate such rules and procedures it deems necessary to carry out its responsibilities. 21

Rules may take one of two forms: procedural rules, which shall require an affirmative vote of a majority of the governing 22

board present and voting to adopt; and interpretative rules which shall require an affirmative vote of three-fourths of the 23

entire governing board to adopt. The governing board may take any action that is necessary and proper to fulfill the 24

purposes of the Agreement. The governing board may allocate the cost of administration of the Agreement among the 25

member states.” The amendment to this section became effective upon its approval. 26

27

Section 807: OPEN MEETINGS 28

Each meeting of the governing board and the minutes thereof shall be open to the public except as 29

provided herein. Meetings of the governing board may be closed only for one or more of the following: 30

A. Personnel issues. 31


B. Information required by the laws of any member state to be protected from public disclosure. In 1

the meeting, the governing board shall excuse any attendee to whom confidential taxpayer 2

information cannot be disclosed under the law of any member state. 3

C. Proprietary information requested by any business to be protected from disclosure. 4

D. The consideration of issues incident to competitive bidding, requests for information, or 5

certification, the disclosure of which would defeat the public interest in a fair and competitive 6

process. 7

E. The consideration of pending litigation in a member state the discussion of which in a public 8

session would, in the judgment of the member state engaged in the litigation, adversely affect its 9

interests. In the meeting, the governing board shall excuse any attendee to whom confidential 10

taxpayer information cannot be disclosed under the law of any member state. 11

F. The consideration of pending litigation in which the governing board is a party the discussion of 12

which in a public session would, in the judgment of the governing board, adversely affect its 13

interests. In the meeting, the governing board shall excuse any attendee to whom confidential 14

taxpayer information cannot be disclosed under the law of any member state. 15

A closed session of the governing board may be convened by the chair or by a majority vote of the 16

governing board. When a closed session is convened, the reason for the closed session shall be noted in 17

a public session. Any actions taken in the closed session shall be reported immediately upon the 18

reconvening of a public session. 19

Compiler’s note: On April 16, 2005 Section 807 (F) was added and was effective upon its adoption. 20

21

Section 808: WITHDRAWAL OF MEMBERSHIP OR EXPULSION OF A MEMBER 22

With respect to each member state, the Agreement shall continue in full force and effect until a member 23

state withdraws its membership or is expelled. A member state’s withdrawal or expulsion cannot be 24

effective until the first day of a calendar quarter after a minimum of sixty days’ notice. A member state 25

shall submit notice of its intent to withdraw from the Agreement to the governing board and the chief 26

executive of each member state’s tax agency. The member state shall provide public notice of its intent 27

to withdraw and post its notice of intent to withdraw on its web site. The withdrawal by or expulsion of 28

a state does not affect the validity of the Agreement among other member states. A state that withdraws 29

or is expelled from the Agreement remains liable for its share of any financial or contractual obligations 30


that were incurred by the governing board prior to the effective date of that state's withdrawal or 1

expulsion. The appropriate share of any financial or contractual obligation shall be determined by the 2

state and the governing board in good faith based on the relative benefits received and burdens incurred 3

by the parties. 4

5

Section 809: SANCTION OF MEMBER STATES 6

A. If a member state is found to be out of compliance with the Agreement, the governing board may 7

consider sanctions against the state. The sanctions that the governing board may impose include 8

expulsion from the Agreement, or other penalties as determined by the governing board. The adoption 9

of a resolution to sanction a member state for noncompliance with the Agreement shall require the 10

affirmative vote of three-fourths of the entire governing board, excluding the state that is the subject of 11

the resolution. The member state that is the subject of the resolution shall not vote on such resolution. 12

Resolutions seeking sanctions shall be acted upon by the governing board within a reasonable period of 13

time as set forth in the governing board’s rules. The governing board shall provide an opportunity for 14

public comment prior to action on a proposed sanction. 15

16

B. No member state shall be sanctioned for failing to comply with any amendment to the 17

Agreement adopted under section 901 of the Agreement or an interpretation or interpretative rule 18

adopted under section 902 of the Agreement, if compliance with the amendment, interpretation or 19

interpretive rule requires the state to make a statutory change, until the later of the first day of January at 20

least two years after the adoption of the amendment or interpretive rule or the first day of a calendar 21

quarter following the end of one full session of the state’s legislature. 22 23 C. No member state shall be sanctioned for failing to be in compliance with any term of the 24

Agreement that the state has adopted, in substantially identical form, in its statutes if its noncompliance 25

is a result of a judicial ruling in that state that interprets that term of the Agreement in a manner 26

inconsistent with an interpretation by, or interpretive rule of, the Governing Board adopted under section 27

902 of the Agreement and the member state comes into compliance with the interpretation of the 28

Governing Board by amending its statutes before the later of the first day of January at least two years 29

after the issuance of the judicial decision or the first day of a calendar quarter following one full session 30

of the state’s legislature. 31 Streamlined Sales and Use Tax Agreement Page 69 June 23, 2007

Compiler’s note: On December 14, 2006 Section 809 was amended by adding subsections B and C. The amendment to this 1

section was effective upon its adoption. 2

3

Section 810: STATE AND LOCAL ADVISORY COUNCIL 4

The governing board shall create a State and Local Government Advisory Council to advise the 5

governing board on matters pertaining to the administration of the Agreement. The membership shall 6

include at least one representative from each state that is a participating member of the Streamlined 7

Sales Tax Project pursuant to the Operating Rules of the Project as designated by that state. In addition, 8

the governing board shall appoint local government officials to the State and Local Government 9

Advisory Council. The governing board may appoint other state officials as it deems appropriate. 10

Matters pertaining to the administration of the Agreement shall include, but not be limited to, admission 11

of states into membership, noncompliance, and interpretations, revisions or additions to the Agreement. 12

The State and Local Government Advisory Council shall advise and assist the Business Advisory 13

Council in the functions noted in Section 811. 14

Compiler’s note: On April 16, 2005 Section 810 was amended by deleting “and Taxpayer” after “Business” in the last 15

sentence. The amendment to this section was effective upon its adoption. 16

17

Section 811: BUSINESS ADVISORY COUNCIL 18

The governing board shall recognize a Business Advisory Council from the private sector to advise the 19

governing board on matters pertaining to the administration of the Agreement. These matters shall 20

include, but not be limited to, admission of states into membership, noncompliance, and interpretations, 21

revisions or additions to the Agreement. The Business Advisory Council shall advise and assist the 22

State and Local Government Advisory Council in the functions noted in Section 810. 23

Compiler’s note: On April 16, 2005 Section 811 was amended by deleting “AND TAXPAYER” from the title line; deleting 24

“create” and inserting “recognize” after “shall” in the first sentence and deleting “and Taxpayer” after “Business” from 25

the first and third sentences. The amendments to this section were effective upon its adoption. 26


ARTICLE IX 1

AMENDMENTS AND INTERPRETATIONS 2

3

Section 901: AMENDMENTS TO AGREEMENT 4

Amendments to the Agreement may be brought before the governing board by any member state. The 5

Agreement may be amended by a three-fourths vote of the entire governing board. The governing board 6

shall give the Governor and presiding officer of each house of each member state notice of proposed 7

amendments to the Agreement at least sixty days prior to consideration. The governing board shall give 8

public notice of proposed amendments to the Agreement at least sixty days prior to consideration. The 9

governing board shall provide an opportunity for public comment prior to action on an amendment to 10

the Agreement. 11

12

Section 902: INTERPRETATIONS OF AGREEMENT 13

Matters involving interpretation of the Agreement may be brought before the governing board by any 14

member state or by any other person. Interpretations may take the form of interpretive opinions, or 15

interpretive rules. An interpretive opinion is issued when the requester submits specific facts and asks 16

how certain provisions in the Agreement would apply to those facts, similar to a private letter ruling. An 17

interpretive rule is issued to clarify language in the Agreement and applies more generally, similar to 18

rules and regulations issued to clarify statutory language. Both forms of interpretations shall require a 19

three-fourths vote of the entire governing board. The governing board shall publish all interpretations 20

issued under this section. Interpretations shall be considered part of the Agreement and shall have the 21

same effect as the Agreement. The governing board shall act on requests for interpretation of the 22

Agreement within a reasonable period of time and under guidelines and procedures as set forth in the 23

governing board’s rules. The governing board may determine that it will not issue an interpretation. 24

The governing board shall provide an opportunity for public comment prior to issuing an interpretation 25

of the Agreement. The governing board shall give notice of a proposed interpretive rule to the member 26

states and the public as provided in Section 901 of the Agreement, except that notice must be given at 27

least thirty days prior to consideration. 28


Compiler’s note: On August 29, 2006 Section 902 was amended by adding the second, third, fourth, and last sentences. The 1

fifth sentence was amended as follows: “All Both forms of”. The August 29, 2006 amendment to this section became effective 2

upon its approval. 3

4

Section 903: DEFINITION REQUESTS 5

Any member state or any other person may make requests for additional definitions or for 6

interpretations on how an individual product or service fits within a definition. Requests shall be 7

submitted in writing as determined by the governing board. Such requests shall be referred to 8

the Advisory Council created in Section 810 or other group under guidelines and procedures as 9

set forth in the governing board’s rules. The entity to which the request was referred shall post 10

notice of the request and provide for input from the public and the member states as directed by 11

the governing board. Within one hundred eighty days after receiving the request, they shall 12

report to the governing board one of the following recommendations: 13

A. That no action be taken on the request; 14

B. That a proposed amendment to the Library be submitted; 15

C. That an interpretation request be submitted; or 16

D. That additional time is needed to review the request. 17

18

If either an amendment or an interpretation is recommended, the entity to which the request was 19

referred shall provide the appropriate language as required by the governing board. The 20

governing board shall take action on the recommendation of the entity to which the request was 21

referred at the next meeting of the governing board pursuant to the notice requirements of 22

Section 806. Action by the governing board to approve a recommendation for no action shall be 23

considered the final disposition of the request. Nothing in this paragraph shall prohibit a state 24

from directly submitting a proposed amendment or an interpretation request to the governing 25

board pursuant to Section 901 or Section 902. 26


ARTICLE X 1

ISSUE RESOLUTION PROCESS 2

3

Section 1001: RULES AND PROCEDURES FOR ISSUE RESOLUTION 4

The governing board shall promulgate rules creating an issue resolution process. The rules shall govern 5

the conduct of the process, including the participation by any petitioner, affected state, and other 6

interested party, the disposition of a petition to invoke the process, the allocation of costs for 7

participating in the process, the possible involvement of a neutral third party or non-binding arbitration, 8

and such further details as the governing board determines necessary and appropriate. 9

10

Section 1002: PETITION FOR RESOLUTION 11

Any member state or person may petition the governing board to invoke the issue resolution process to 12

resolve matters of: 13

A. Membership of a state under Article VIII; 14

B. Matters of compliance under Section 805; 15

C. Possibilities of sanctions of a member state under Section 809; 16

D. Amendments to the Agreement under Section 901; 17

E. Interpretation issues, including differing interpretations among the member states, under Section 18

902; or 19

F. Other matters at the discretion of the governing board. 20

21

Section 1003: FINAL DECISION OF GOVERNING BOARD 22

The governing board shall consider any recommendations resulting from the issue resolution process 23

before making its decision, which decision shall, as with all other matters under the Agreement, be final 24

and not subject to further review. 25

26

Section 1004: LIMITED SCOPE OF THIS ARTICLE 27

Nothing in this Article shall be construed to substitute for, stay or extend, limit, expand, or 28

otherwise affect, in any manner, any right or duty that any person or governmental body has 29

under the laws of any member state or local government body. This Article is specifically 30


subject to the terms of Article XI and shall not be construed as taking precedence over Article 1

XI. 2


ARTICLE XI 1

RELATIONSHIP OF AGREEMENT TO MEMBER STATES AND PERSONS 2

3

Section 1101: COOPERATING SOVEREIGNS 4

This Agreement is among individual cooperating sovereigns in furtherance of their governmental 5

functions. The Agreement provides a mechanism among the member states to establish and 6

maintain a cooperative, simplified system for the application and administration of sales and use 7

taxes under the duly adopted law of each member state. 8

9

Section 1102: RELATIONSHIP TO STATE LAW 10

No provision of the Agreement in whole or part invalidates or amends any provision of the law 11

of a member state. Adoption of the Agreement by a member state does not amend or modify any 12

law of the state. Implementation of any condition of the Agreement in a member state, whether 13

adopted before, at, or after membership of a state, must be by the action of the member state. All 14

member states remain subject to Article VIII. 15

16

Section 1103: LIMITED BINDING AND BENEFICIAL EFFECT 17

A. This Agreement binds and inures only to the benefit of the member states. No person, 18

other than a member state, is an intended beneficiary of this Agreement. Any benefit to a 19

person other than a state is established by the laws of the member states and not by the 20

terms of this Agreement. 21

B. Consistent with subsection (A), no person shall have any cause of action or defense under 22

the Agreement or by virtue of a member state's approval of the Agreement. No person 23

may challenge, in any action brought under any provision of law, any action or inaction 24

by any department, agency, or other instrumentality of any member state, or any political 25

subdivision of a member state on the ground that the action or inaction is inconsistent 26

with the Agreement. 27

C. No law of a member state, or the application thereof, may be declared invalid as to any 28

person or circumstance on the ground that the provision or application is inconsistent 29

with the Agreement. 30


1

Section 1104: FINAL DETERMINATIONS 2

The determinations pertaining to the Agreement that are made by the member states are final 3

when rendered and are not subject to any protest, appeal, or review. 4


ARTICLE XII 1

REVIEW OF COSTS AND BENEFITS ASSOCIATED WITH THE AGREEMENT 2

3

Section 1201: REVIEW OF COSTS AND BENEFITS 4

The governing board will review costs and benefits of administration and collection of sales and 5

use taxes incurred by states and sellers under the existing sales and use tax laws at the time of 6

adoption of the Agreement and the proposed Streamlined Sales Tax Agreement. 7


APPENDIX A 1

STREAMLINED SALES AND USE TAX AGREEMENT 2

PETITION FOR MEMBERSHIP 3

4

WHEREAS, it is in the interest of the private sector and of state and local governments to 5

simplify and modernize sales and use tax administration; 6

WHEREAS, such simplification and modernization will result in a substantial reduction in the 7

costs and complexity for sellers of personal property and services in conducting their commercial 8

enterprises; 9

WHEREAS, such simplification and modernization will also result in additional voluntary 10

compliance with the sales and use tax laws; 11

WHEREAS, such simplification and modernization of sales and use tax administration is best 12

conducted in cooperation and coordination with other states; and 13

WHEREAS, the State of ___________________ levies a sales tax and levies a use tax. “Sales 14

tax” means the tax levied under (CITE SPECIFIC STATUTE) and “use tax” means the tax 15

levied under (CITE SPECIFIC STATUTE). 16

NOW, the undersigned representative hereby petitions the governing board of the Streamlined 17

Sales and Use Tax Agreement (or Co-Chairs of the Streamlined Sales Tax Implementing States) 18

for membership into the Agreement. 19

20

21

________________________________ 22

NAME 23

________________________________ 24

TITLE 25

STATE OF ______________________ 26


1

Appendix B 2

INDEX OF DEFINITIONS 3

4

Term Placement in Agreement

Alcoholic beverages Appendix C, Part II, within food and food products category

Agent Article II, Section 201 Air-to-ground radiotelephone service Article III, Section 315

Ancillary services Appendix C, Part II, within telecommunications category

Bundled transaction Appendix C, Part I Call-by-call basis Article III, Section 315

Candy Appendix C, Part II, within food and food products category

Certified automated system Article II, Section 202

Certified service provider Article II, Section 203 Clothing Appendix C, Part II, within clothing category Clothing accessories or equipment Appendix C, Part II, within clothing category

Computer Appendix C, Part II, within computer related category

Computer software Appendix C, Part II, within computer related category

Communications channel Article III, Section 315

Coin-operated telephone service Appendix C, Part II, within telecommunications category

Conference bridging service Appendix C, Part II, within telecommunications category

Confidential taxpayer information Article III, Section 321 Customer Article III, Section 315 Customer channel termination point Article III, Section 315

Delivered electronically Appendix C, Part II, within computer related category

Delivery charges Appendix C, Part I Detailed telecommunications billing service

Appendix C, Part II, within telecommunications category

Dietary supplement Appendix C, Part II, within food and food products category


Term Placement in Agreement Direct mail Appendix C, Part I

Directory assistance Appendix C, Part II, within telecommunications category

Drug Appendix C, Part II, within health care category Durable medical equipment Appendix C, Part II, within health care category

800 service Appendix C, Part II, within telecommunications category

Electronic Appendix C, Library, within computer related category

Eligible property Appendix C, Part III, for sales tax holidays

Entity-based exemption Article II, Section 204

Fixed wireless service Appendix C, Part II, within telecommunications category

Food and food ingredients Appendix C, Part II, within food and food products category

Food sold through vending machines

Appendix C, Part II, within food and food products category

Fur clothing Appendix C, Part II, within clothing category

Grooming and hygiene products Appendix C, Part II, within health care category

Home service provider Article III, Section 315

International Appendix C, Part II, within telecommunications category

Interstate Appendix C, Part II, within telecommunications category

Intrastate Appendix C, Part II, within telecommunications category

Layaway sale Appendix C, Part III, for sales tax holidays

Lease Appendix C, Part I

Load and leave Appendix C, Part II, within computer related category

Mobile telecommunications service Article III, Section 315

Mobile wireless service Appendix C, Part II, within telecommunications category

Mobility enhancing equipment Appendix C, Part II, within health care category

Model 1 Seller Article II, Section 205 Model 2 Seller Article II, Section 206

Model 3 Seller Article II, Section 207



900 service Appendix C, Part II, within telecommunications category

Over-the-counter drug Appendix C, Part II, within health care category

Paging service Appendix C, Part II, within telecommunications category

Pay telephone service Appendix C, Part II, within telecommunications category

Person Article II, Section 208 Place of primary use Article III, Section 315 Post-paid calling service Article III, Section 315

Prepaid calling service Article III, Section 315 and Appendix C, Part II, within telecommunications category

Prepaid wireless calling service Article III, Section 315 and Appendix C, Part II, within telecommunications category

Prepared food Appendix C, Part II, within food and food products category

Prescription Appendix C, Part II, within health care category

Prewritten computer software Appendix C, Part II, within computer related category

Private communication service Article III, Section 315

Product-based exemption Article II, Section 209 Prosthetic device Appendix C, Part II, within health care category

Protective equipment Appendix C, Part II, within clothing category Purchase price Appendix C, Part I Purchaser Article II, Section 210 Rain check Appendix C, Part III, for sales tax holidays

Receive and receipt Article III, Section 311 Registered under this agreement Article II, Section 211 Rental Appendix C, Part I Residential telecommunications service


Retail sale Appendix C, Part I Sale at retail Appendix C, Part I Sales price Appendix C, Part I Seller Article II, Section 212

Service address Article III, Section 315

Soft drinks Appendix C, Part II, within food and food products category



Sport or recreational equipment Appendix C, Part II, within clothing category

State Article II, Section 213 Tangible personal property Appendix C, Part I Telecommunications nonrecurring charges Appendix C, Part I, within “sales price” definition

Telecommunications service Appendix C, Part II, within telecommunications category

Tobacco Appendix C, Part II, within food and food products category

Transportation equipment Article III, Section 310

Use-based exemption Article II, Section 214 Value-added non-voice data service


Vertical service Appendix C, Part II, within telecommunications category

Voice mail service Appendix C, Part II, within telecommunications category


Appendix C 1

LIBRARY OF DEFINITIONS 2

3

Part I Administrative definitions including tangible personal property. Terms included 4

in this Part are core terms that apply in imposing and administering sales and use taxes. 5

6

Part II Product definitions. Terms included in this Part are used to exempt items from 7

sales and use taxes or to impose tax on items by narrowing an exemption that otherwise includes 8

these items. 9

10

Part III Sales tax holiday definitions. Terms included in this Part are core terms that 11

apply in imposing and administering sales and use taxes during sales tax holidays. 12

13

PART I 14

15

Administrative Definitions 16

17

A “bundled transaction” is the retail sale of two or more products, except real property and 18

services to real property, where (1) the products are otherwise distinct and identifiable, and (2) 19

the products are sold for one non-itemized price. A “bundled transaction” does not include the 20

sale of any products in which the “sales price” varies, or is negotiable, based on the selection by 21

the purchaser of the products included in the transaction. 22

23 (A) “Distinct and identifiable products” does not include: 24

1. Packaging – such as containers, boxes, sacks, bags, and bottles – or other materials – 25

such as wrapping, labels, tags, and instruction guides – that accompany the “retail sale” 26

of the products and are incidental or immaterial to the “retail sale” thereof. Examples of 27

packaging that are incidental or immaterial include grocery sacks, shoeboxes, dry 28

cleaning garment bags and express delivery envelopes and boxes. 29


2. A product provided free of charge with the required purchase of another product. A 1

product is “provided free of charge” if the “sales price” of the product purchased does 2

not vary depending on the inclusion of the product “provided free of charge.” 3

3. Items included in the member state’s definition of “sales price,” pursuant to Appendix C 4

of the Agreement. 5

(B) The term “one non-itemized price” does not include a price that is separately identified by 6

product on binding sales or other supporting sales-related documentation made available to the 7

customer in paper or electronic form including, but not limited to an invoice, bill of sale, receipt, 8

contract, service agreement, lease agreement, periodic notice of rates and services, rate card, or 9

price list. 10

(C) A transaction that otherwise meets the definition of a “bundled transaction” as defined 11

above, is not a “bundled transaction” if it is: 12

(1) The “retail sale” of tangible personal property and a service where the tangible personal 13

property is essential to the use of the service, and is provided exclusively in connection with the 14

service, and the true object of the transaction is the service; or 15

(2) The “retail sale” of services where one service is provided that is essential to the use or 16

receipt of a second service and the first service is provided exclusively in connection with the 17

second service and the true object of the transaction is the second service; or 18

(3) A transaction that includes taxable products and nontaxable products and the “purchase 19

price” or “sales price” of the taxable products is de minimis. 20

(a) De minimis means the seller’s “purchase price” or “sales price” of the taxable 21

products is ten percent (10%) or less of the total “purchase price” or “sales price” of the 22

bundled products. 23

(b) Sellers shall use either the “purchase price” or the “sales price” of the products to 24

determine if the taxable products are de minimis. Sellers may not use a combination of the 25

“purchase price” and “sales price” of the products to determine if the taxable products are de 26

minimis. 27

(c) Sellers shall use the full term of a service contract to determine if the taxable 28

products are de minimis; or 29


(4) The “retail sale” of exempt tangible personal property and taxable tangible personal 1

property where: 2

(a) the transaction includes “food and food ingredients”, “drugs”, “durable medical 3

equipment”, “mobility enhancing equipment”, “over-the-counter drugs”, “prosthetic devices” (all 4

as defined in Appendix C) or medical supplies; and 5

(b) where the seller's “purchase price” or “sales price” of the taxable tangible personal 6

property is fifty percent (50%) or less of the total “purchase price” or “sales price” of the 7

bundled tangible personal property. Sellers may not use a combination of the “purchase price” 8

and “sales price” of the tangible personal property when making the fifty percent (50%) 9

determination for a transaction. 10

Compiler’s note: On April 16, 2005 the definition of a” bundled transaction” was added. Member States shall 11

comply with this definition no later than January 1, 2008. 12

13

“Delivery charges” means charges by the seller of personal property or services for preparation 14

and delivery to a location designated by the purchaser of personal property or services including, 15

but not limited to, transportation, shipping, postage, handling, crating, and packing. 16

A member state may exclude from “delivery charges” the charges for delivery of “direct mail” if 17

the charges are separately stated on an invoice or similar billing document given to the 18

purchaser. 19

If a shipment includes exempt property and taxable property, the seller should allocate the 20

delivery charge by using: 21

a. a percentage based on the total sales prices of the taxable property compared to 22

the total sales prices of all property in the shipment; or 23

b. a percentage based on the total weight of the taxable property compared to the 24

total weight of all property in the shipment. 25

The seller must tax the percentage of the delivery charge allocated to the taxable property but 26

does not have to tax the percentage allocated to the exempt property. 27

28

“Direct mail” means printed material delivered or distributed by United States mail or other 29

delivery service to a mass audience or to addressees on a mailing list provided by the purchaser 30


or at the direction of the purchaser when the cost of the items are not billed directly to the 1

recipients. “Direct mail” includes tangible personal property supplied directly or indirectly by 2

the purchaser to the direct mail seller for inclusion in the package containing the printed material. 3

“Direct mail” does not include multiple items of printed material delivered to a single address. 4

Compiler’s note: The Governing Board issued an interpretation of “direct mail” on December 14, 2006. That 5


7

"Lease or rental" means any transfer of possession or control of tangible personal property for 8

a fixed or indeterminate term for consideration. A lease or rental may include future options to 9

purchase or extend. 10

A. Lease or rental does not include: 11

1. A transfer of possession or control of property under a security agreement or deferred 12

payment plan that requires the transfer of title upon completion of the required 13

payments; 14

2. A transfer or possession or control of property under an agreement that requires the 15

transfer of title upon completion of required payments and payment of an option price 16

does not exceed the greater of one hundred dollars or one percent of the total required 17

payments; or 18

3. Providing tangible personal property along with an operator for a fixed or 19

indeterminate period of time. A condition of this exclusion is that the operator is 20

necessary for the equipment to perform as designed. For the purpose of this 21

subsection, an operator must do more than maintain, inspect, or set-up the tangible 22

personal property. 23

B. Lease or rental does include agreements covering motor vehicles and trailers where the 24

amount of consideration may be increased or decreased by reference to the amount 25

realized upon sale or disposition of the property as defined in 26 USC 7701(h)(1). 26

C. This definition shall be used for sales and use tax purposes regardless if a transaction is 27

characterized as a lease or rental under generally accepted accounting principles, the 28

Internal Revenue Code, the [state commercial code], or other provisions of federal, state 29

or local law. 30


D. This definition will be applied only prospectively from the date of adoption and will 1

have no retroactive impact on existing leases or rentals. This definition shall neither 2

impact any existing sale-leaseback exemption or exclusions that a state may have, nor 3

preclude a state from adopting a sale-leaseback exemption or exclusion after the 4

effective date of the Agreement. 5

6

“Purchase price” applies to the measure subject to use tax and has the same meaning as sales 7

price. 8

9

“Retail sale or Sale at retail” means any sale, lease, or rental for any purpose other than for 10

resale, sublease, or subrent. 11

12

“Sales price”(Effective through December 31, 2007) applies to the measure subject to sales 13

tax and means the total amount of consideration, including cash, credit, property, and services, 14

for which personal property or services are sold, leased, or rented, valued in money, whether 15

received in money or otherwise, without any deduction for the following: 16

A. The seller's cost of the property sold; 17

B. The cost of materials used, labor or service cost, interest, losses, all costs of 18

transportation to the seller, all taxes imposed on the seller, and any other expense 19

of the seller; 20

C. Charges by the seller for any services necessary to complete the sale, other than 21

delivery and installation charges; 22

D. Delivery charges; 23

E. Installation charges; 24

F. The value of exempt personal property given to the purchaser where taxable and 25

exempt personal property have been bundled together and sold by the seller as a 26

single product or piece of merchandise; and 27

G. Credit for any trade-in, as determined by state law. 28


States may exclude from “sales price” the amounts received for charges included in paragraphs 1

(C) through (G) above, if they are separately stated on the invoice, billing, or similar document 2

given to the purchaser. 3

“Sales price” shall not include: 4

A. Discounts, including cash, term, or coupons that are not reimbursed by a third 5

party that are allowed by a seller and taken by a purchaser on a sale; 6

B. Interest, financing, and carrying charges from credit extended on the sale of 7

personal property or services, if the amount is separately stated on the invoice, 8

bill of sale or similar document given to the purchaser; and 9

C. Any taxes legally imposed directly on the consumer that are separately stated on 10

the invoice, bill of sale or similar document given to the purchaser. 11

12

“Sales price” (Effective on and after January 1, 2008) applies to the measure subject to sales 13

tax and means the total amount of consideration, including cash, credit, property, and services, 14

for which personal property or services are sold, leased, or rented, valued in money, whether 15

received in money or otherwise, without any deduction for the following: 16

A. The seller's cost of the property sold; 17

B. The cost of materials used, labor or service cost, interest, losses, all costs of 18

transportation to the seller, all taxes imposed on the seller, and any other expense 19

of the seller; 20

C. Charges by the seller for any services necessary to complete the sale, other than 21

delivery and installation charges; 22

D. Delivery charges; 23

E. Installation charges; and 24

F. Credit for any trade-in, as determined by state law. 25

States may exclude from “sales price” the amounts received for charges included in paragraphs 26

(C) through (F) above, if they are separately stated on the invoice, billing, or similar document 27


given to the purchaser. States may exclude from (C) above, “telecommunications nonrecurring” 1

charges if they are separately stated on the invoice, billing, or similar documents. A state doing 2

so must define “telecommunications nonrecurring charges” as follows: 3

4

“Telecommunications nonrecurring charges” means an amount billed for the installation, 5

connection, change or initiation of “telecommunications service” received by the customer. 6

7

“Sales price” shall not include: 8

A. Discounts, including cash, term, or coupons that are not reimbursed by a third 9

party that are allowed by a seller and taken by a purchaser on a sale; 10

B. Interest, financing, and carrying charges from credit extended on the sale of 11

personal property or services, if the amount is separately stated on the invoice, 12

bill of sale or similar document given to the purchaser; and 13

C. Any taxes legally imposed directly on the consumer that are separately stated on 14

the invoice, bill of sale or similar document given to the purchaser. 15

16

“Sales price” shall include consideration received by the seller from third parties if: 17

A. The seller actually receives consideration from a party other than the purchaser and the 18

consideration is directly related to a price reduction or discount on the sale; 19

B. The seller has an obligation to pass the price reduction or discount through to the 20

purchaser; 21

C. The amount of the consideration attributable to the sale is fixed and determinable by the 22

seller at the time of the sale of the item to the purchaser; and 23

D. One of the following criteria is met: 24

1. The purchaser presents a coupon, certificate or other documentation to the seller to 25

claim a price reduction or discount where the coupon, certificate or documentation is 26

authorized, distributed or granted by a third party with the understanding that the third 27

party will reimburse any seller to whom the coupon, certificate or documentation is 28

presented; 29


2. The purchaser identifies himself or herself to the seller as a member of a group or 1

organization entitled to a price reduction or discount (a “preferred customer” card that 2

is available to any patron does not constitute membership in such a group), or 3

3. The price reduction or discount is identified as a third party price reduction or discount 4

on the invoice received by the purchaser or on a coupon, certificate or other 5

documentation presented by the purchaser. 6

7

States may also exclude from “sales price” either employee discounts that are reimbursed by a 8

third party on sales of motor vehicles, or manufacturer rebates on motor vehicles, or both. 9

Compiler’s note: On April 16, 2005 the following amendments were made to the definition of “Sales 10

Price”. 11

Deleting “F. The value of exempt personal property given to the purchaser where taxable and exempt 12

personal property have been bundled together and sold by the seller as a single product or piece of 13

merchandise;” and renumbering “G” to “F”. 14

Changing the cross reference to reflect the renumbering, inserting the second and third sentences in the 15

paragraph following (F), and inserting the definition of “telecommunications nonrecurring charges”. 16

Inserting all of the material starting with “Sales price” shall include consideration received by the seller 17

from third parties”. 18

Member states shall comply with the changes to this definition no later than January 1, 2008. 19

20

“Tangible personal property” means personal property that can be seen, weighed, measured, 21

felt, or touched, or that is in any other manner perceptible to the senses. “Tangible personal 22

property” includes electricity, water, gas, steam, and prewritten computer software. 23

24

PART II 25

Product Definitions 26

27

CLOTHING 28 “Clothing” means all human wearing apparel suitable for general use. The following list 29

contains examples and is not intended to be an all-inclusive list. 30

A. “Clothing” shall include: 31

1. Aprons, household and shop; 32


2. Athletic supporters; 1

3. Baby receiving blankets; 2

4. Bathing suits and caps; 3

5. Beach capes and coats; 4

6. Belts and suspenders; 5

7. Boots; 6

8. Coats and jackets; 7

9. Costumes; 8

10. Diapers, children and adult, including disposable diapers; 9

11. Ear muffs; 10

12. Footlets; 11

13. Formal wear; 12

14. Garters and garter belts; 13

15. Girdles; 14

16. Gloves and mittens for general use; 15

17. Hats and caps; 16

18. Hosiery; 17

19. Insoles for shoes; 18

20. Lab coats; 19

21. Neckties; 20

22. Overshoes; 21

23. Pantyhose; 22

24. Rainwear; 23

25. Rubber pants; 24

26. Sandals; 25

27. Scarves; 26

28. Shoes and shoe laces; 27

29. Slippers; 28

30. Sneakers; 29

31. Socks and stockings; 30


32. Steel toed shoes; 1

33. Underwear; 2

34. Uniforms, athletic and non-athletic; and 3

35. Wedding apparel. 4

B. “Clothing” shall not include: 5

1. Belt buckles sold separately; 6

2. Costume masks sold separately; 7

3. Patches and emblems sold separately; 8

4. Sewing equipment and supplies including, but not limited to, knitting needles, 9

patterns, pins, scissors, sewing machines, sewing needles, tape measures, and 10

thimbles; and 11

5. Sewing materials that become part of “clothing” including, but not limited to, buttons, 12

fabric, lace, thread, yarn, and zippers. 13

Compiler’s note: The Governing Board issued an interpretation of the definition of clothing on August 29, 2006. 14

That interpretation can be found in the Library of Interpretations. 15

"Clothing accessories or equipment" means incidental items worn on the person or in 16

conjunction with “clothing.” “Clothing accessories or equipment” are mutually exclusive of and 17

may be taxed differently than apparel within the definition of “clothing,” “sport or recreational 18

equipment,” and “protective equipment.” The following list contains examples and is not 19

intended to be an all-inclusive list. “Clothing accessories or equipment” shall include: 20

A. Briefcases; 21

B. Cosmetics; 22

C. Hair notions, including, but not limited to, barrettes, hair bows, and hair nets; 23

D. Handbags; 24

E. Handkerchiefs; 25

F. Jewelry; 26

G. Sun glasses, non-prescription; 27

H. Umbrellas; 28

I. Wallets; 29

J. Watches; and 30


K. Wigs and hair pieces. 1

“Fur clothing” means “clothing” that is required to be labeled as a fur product under the Federal 2

Fur Products Labeling Act (15 U.S.C. §69), and the value of the fur components in the product is 3

more than three times the value of the next most valuable tangible component. “Fur clothing” is 4

human wearing apparel suitable for general use but may be taxed differently from “clothing.” 5

For the purposes of the definition of “fur clothing” the term “fur” means any animal skin or part 6

thereof with hair, fleece, or fur fibers attached thereto, either in its raw or processed state, but 7

shall not include such skins that have been converted into leather or suede, or which in 8

processing, the hair, fleece, or fur fiber has been completely removed. 9

Compiler’s note: On December 14, 2006 the definition of “fur clothing” was approved. 10

"Protective equipment" means items for human wear and designed as protection of the wearer 11

against injury or disease or as protections against damage or injury of other persons or property 12

but not suitable for general use. “Protective equipment” are mutually exclusive of and may be 13

taxed differently than apparel within the definition of “clothing,” “clothing accessories or 14

equipment,” and “sport or recreational equipment.” The following list contains examples and is 15

not intended to be an all-inclusive list. “Protective equipment” shall include: 16

A. Breathing masks; 17

B. Clean room apparel and equipment; 18

C. Ear and hearing protectors; 19

D. Face shields; 20

E. Hard hats; 21

F. Helmets; 22

G. Paint or dust respirators; 23

H. Protective gloves; 24

I. Safety glasses and goggles; 25

J. Safety belts; 26

K. Tool belts; and 27

L. Welders gloves and masks. 28

"Sport or recreational equipment" means items designed for human use and worn in 29

conjunction with an athletic or recreational activity that are not suitable for general use. “Sport 30


or recreational equipment” are mutually exclusive of and may be taxed differently than apparel 1

within the definition of “clothing,” “clothing accessories or equipment,” and “protective 2

equipment.” The following list contains examples and is not intended to be an all-inclusive list. 3

“Sport or recreational equipment” shall include: 4

A. Ballet and tap shoes; 5

B. Cleated or spiked athletic shoes; 6

C. Gloves, including, but not limited to, baseball, bowling, boxing, hockey, and golf; 7

D. Goggles; 8

E. Hand and elbow guards; 9

F. Life preservers and vests; 10

G. Mouth guards; 11

H. Roller and ice skates; 12

I. Shin guards; 13

J. Shoulder pads; 14

K. Ski boots; 15

L. Waders; and 16

M. Wetsuits and fins. 17

18

COMPUTER RELATED 19 “Computer” means an electronic device that accepts information in digital or similar form and 20

manipulates it for a result based on a sequence of instructions. 21

“Computer software” means a set of coded instructions designed to cause a “computer” or 22

automatic data processing equipment to perform a task. 23

“Delivered electronically” means delivered to the purchaser by means other than tangible 24

storage media. 25

“Electronic” means relating to technology having electrical, digital, magnetic, wireless, optical, 26

electromagnetic, or similar capabilities. 27

“Load and leave” means delivery to the purchaser by use of a tangible storage media where the 28

tangible storage media is not physically transferred to the purchaser. 29


“Prewritten computer software” means “computer software,” including prewritten upgrades, 1

which is not designed and developed by the author or other creator to the specifications of a 2

specific purchaser. The combining of two or more “prewritten computer software” programs or 3

prewritten portions thereof does not cause the combination to be other than “prewritten computer 4

software.” “Prewritten computer software” includes software designed and developed by the 5

author or other creator to the specifications of a specific purchaser when it is sold to a person 6

other than the specific purchaser. Where a person modifies or enhances “computer software” of 7

which the person is not the author or creator, the person shall be deemed to be the author or 8

creator only of such person’s modifications or enhancements. “Prewritten computer software” or 9

a prewritten portion thereof that is modified or enhanced to any degree, where such modification 10

or enhancement is designed and developed to the specifications of a specific purchaser, remains 11

“prewritten computer software;” provided, however, that where there is a reasonable, separately 12

stated charge or an invoice or other statement of the price given to the purchaser for such 13

modification or enhancement, such modification or enhancement shall not constitute “prewritten 14

computer software.” 15

A member state may exempt “prewritten computer software” “delivered electronically” or by 16

“load and leave.” 17

18

FOOD AND FOOD PRODUCTS 19 “Alcoholic Beverages” means beverages that are suitable for human consumption and contain 20

one-half of one percent or more of alcohol by volume. 21

“Candy” means a preparation of sugar, honey, or other natural or artificial sweeteners in 22

combination with chocolate, fruits, nuts or other ingredients or flavorings in the form of bars, 23

drops, or pieces. “Candy” shall not include any preparation containing flour and shall require no 24

refrigeration. 25

“Dietary supplement” means any product, other than “tobacco,” intended to supplement the 26

diet that: 27

A. Contains one or more of the following dietary ingredients: 28 1. A vitamin; 29

2. A mineral; 30

3. An herb or other botanical; 31 Streamlined Sales and Use Tax Agreement Page 95 June 23, 2007

4. An amino acid; 1

5. A dietary substance for use by humans to supplement the diet by increasing the total 2

dietary intake; or 3

6. A concentrate, metabolite, constituent, extract, or combination of any ingredient 4

described in above; andIs intended for ingestion in tablet, capsule, powder, softgel, gelcap, 5

or liquid form, or if not intended for ingestion in such a form, is not represented as 6

conventional food and is not represented for use as a sole item of a meal or of the diet; and 7

C. Is required to be labeled as a dietary supplement, identifiable by the "Supplemental Facts" 8

box found on the label and as required pursuant to 21 C.F.R § 101.36. 9

“Food and food ingredients” means substances, whether in liquid, concentrated, solid, frozen, 10

dried, or dehydrated form, that are sold for ingestion or chewing by humans and are consumed 11

for their taste or nutritional value. “Food and food ingredients” does not include “alcoholic 12

beverages” or “tobacco.” A member state may exclude “candy,” “dietary supplements” and 13

“soft drinks” from this definition, which items are mutually exclusive of each other. 14

Notwithstanding the foregoing requirements of this definition or any other provision of the 15

Agreement, a member state may maintain its tax treatment of food in a manner that differs from 16

the definitions provided herein, provided its taxation or exemption of food is based on a 17

prohibition or requirement of that state’s Constitution that exists on the effective date of the 18

Agreement. 19

“Food sold through vending machines” means food dispensed from a machine or other 20

mechanical device that accepts payment. 21

“Prepared food” means: 22

A. Food sold in a heated state or heated by the seller; 23

B. Two or more food ingredients mixed or combined by the seller for sale as a single item; 24

or 25

C. Food sold with eating utensils provided by the seller, including plates, knives, forks, 26

spoons, glasses, cups, napkins, or straws. A plate does not include a container or 27

packaging used to transport the food. 28

“Prepared food” in B does not include food that is only cut, repackaged, or pasteurized by the 29

seller, and eggs, fish, meat, poultry, and foods containing these raw animal foods requiring 30


cooking by the consumer as recommended by the Food and Drug Administration in chapter 3, 1

part 401.11 of its Food Code so as to prevent food borne illnesses. 2

3

The following items may be taxed differently than “prepared food” and each other, if sold 4

without eating utensils provided by the seller, but may not be taxed differently than the same 5

item when classified under “food and food ingredients.” 6

1. Food sold by a seller whose proper primary NAICS classification is manufacturing in 7

sector 311, except subsector 3118 (bakeries). 8

2. Food sold in an unheated state by weight or volume as a single item. 9

3. Bakery items, including bread, rolls, buns, biscuits, bagels, croissants, pastries, 10

donuts, danish, cakes, tortes, pies, tarts, muffins, bars, cookies, tortillas. 11

Substances within “food and food ingredients” may be taxed differently if sold as “prepared 12

food.” A state shall tax or exempt from taxation “candy,” dietary supplements,” and “soft 13

drinks” that are sold as “prepared food” in the same manner as it treats other substances that are 14

sold as “prepared food.” 15

Compiler’s note: The Governing Board issued an interpretation of the definition of “prepared food” on April 18, 16

2006. That interpretation can be found in the Library of Interpretations. Compiler’s note: The Governing Board 17

issued an interpretation of “prepared food” on December 14, 2006. That interpretation can be found in the Library 18

of Interpretations. 19

“Soft drinks” means non-alcoholic beverages that contain natural or artificial sweeteners. “Soft 20

drinks” do not include beverages that contain milk or milk products, soy, rice or similar milk 21

substitutes, or greater than fifty percent of vegetable or fruit juice by volume. 22

“Tobacco” means cigarettes, cigars, chewing or pipe tobacco, or any other item that contains 23

tobacco. 24

25

HEALTH-CARE 26 “Drug” means a compound, substance or preparation, and any component of a compound, 27

substance or preparation, other than “food and food ingredients,” “dietary supplements” or 28

“alcoholic beverages:” 29


A. Recognized in the official United State Pharmacopoeia, official Homeopathic 1

Pharmacopoeia of the United States, or official National Formulary, and supplement to 2

any of them; or 3

B. Intended for use in the diagnosis, cure, mitigation, treatment, or prevention of disease; or 4

C. Intended to affect the structure or any function of the body. 5

A member state may independently: 6

A. Limit the definition of “drug” to human use (as opposed to both human and animal use) 7

in the administration of its exemption; 8

B. Draft its exemption for “drug” to specifically add insulin and/or medical oxygen so that 9

no prescription is required, even if a state requires a prescription under its exemption for 10

drugs; 11

C. Determine the taxability of the sales of drugs and prescription drugs to hospitals and 12

other medical facilities; 13

D. Determine the taxability of free samples of drugs; and 14

E. Determine the taxability of bundling taxable and nontaxable drug, if uniform treatment 15

of bundled transactions is not otherwise defined in the Agreement. 16

Compiler’s note: The Governing Board issued an interpretation of “drug” on June 23, 2007. That interpretation 17

can be found in the Library of Interpretations. 18

“Durable medical equipment” (Effective through December 31, 2007) means equipment 19

including repair and replacement parts for same, but does not include “mobility enhancing 20

equipment,” which: 21

A. Can withstand repeated use; and 22

B. Is primarily and customarily used to serve a medical purpose; and 23

C. Generally is not useful to a person in the absence of illness or injury; and 24

D. Is not worn in or on the body. 25

A member state may limit its exemption to “durable medical equipment” used for home use only. 26

A member state may limit the application of this definition by requiring a “prescription,” or limit 27

an exemption based on Medicare or Medicaid payments or reimbursements. 28

A member state may exclude from the product definition of “durable medical equipment” any of 29

the following for purposes enacting a product-based exemption: 30


1

1. Oxygen delivery equipment not worn in or on the body, including repair and 2

replacement parts; 3

2. Kidney dialysis equipment not worn in or on the body, including repair and 4

replacement parts; or 5

3. Enteral feeding systems not worn in or on the body, including repair and replacement 6

parts. 7

8

A member state choosing to enact a product-based exemption for oxygen delivery equipment, 9

kidney dialysis equipment, or enteral feeding systems, if those items are not worn in or on the 10

body, must also enact a product-based exemption for oxygen delivery equipment, kidney dialysis 11

equipment, or enteral feeding systems, if those are worn in or on the body. 12

13

A member state may limit the product-based exemption for oxygen delivery equipment, kidney 14

dialysis equipment, or enteral feeding systems using any combination of the following: 15

16

a. By requiring a prescription; 17

b. Based on Medicare or Medicaid payments or reimbursement; or 18

c. For home use. 19

“Durable medical equipment” (Effective on and after January 1, 2008) means equipment 20

including repair and replacement parts for same, but does not include “mobility enhancing 21

equipment,” which: 22

E. Can withstand repeated use; and 23

F. Is primarily and customarily used to serve a medical purpose; and 24

G. Generally is not useful to a person in the absence of illness or injury; and 25

H. Is not worn in or on the body. 26

A member state may limit its exemption to “durable medical equipment:” 27

A. By requiring a prescription; 28

B. Based on Medicare or Medicaid payments or reimbursement; or 29

C. For home use. 30


A member state may limit the exemption using any combination of the above but in no case shall 1

an exemption certificate be required. 2

3

Repair and replacement parts as used in this definition include all components or attachments 4

used in conjunction with the “durable medical equipment.” A member state may exclude from 5

repair and replacement parts items which are for single patient use only. 6

7

A member state may exclude from the product definition of “durable medical equipment” any of 8

the following for purposes enacting a product-based exemption: 9

10

1. Oxygen delivery equipment not worn in or on the body, including repair and 11

replacement parts; 12

2. Kidney dialysis equipment not worn in or on the body, including repair and 13

replacement parts; or 14

3. Enteral feeding systems not worn in or on the body, including repair and replacement 15

parts. 16

17

A member state choosing to enact a product-based exemption for oxygen delivery equipment, 18

kidney dialysis equipment, or enteral feeding systems, if those items are not worn in or on the 19

body, must also enact a product-based exemption for oxygen delivery equipment, kidney dialysis 20

equipment, or enteral feeding systems, if those are worn in or on the body. 21

22

A member state may limit the product-based exemption for oxygen delivery equipment, kidney 23

dialysis equipment, or enteral feeding systems using any combination of the following: 24

25

a. By requiring a prescription; 26

b. Based on Medicare or Medicaid payments or reimbursement; or 27

c. For home use. 28

Compiler’s note: On October 1, 2005 the durable medical equipment definition was amended by deleting: “A 29

member state may limit its exemption to “durable medical equipment” used for home use only. A member state 30


may limit the application of this definition by requiring a “prescription,” or limit an exemption based on 1

Medicare or Medicaid payments or reimbursements” after D and inserting: 2

“A member state may limit its exemption to “durable medical equipment:” 3

A. By requiring a prescription; 4

B. Based on Medicare or Medicaid payments or reimbursement; or 5

C. For home use. 6

A member state may limit the exemption using any combination of the above but in no case shall an exemption 7

certificate be required." 8

Member states shall adopt and utilize this definition no later than January 1, 2008. 9

Compiler’s note: On August 29, 2006 the durable medical equipment definition was amended by adding all the 10

language starting with “A member state may exclude…” The August 29, 2006 amendment to this section 11

became effective upon its approval. 12

Compiler’s note: On June 23, 2007 the definition of durable medical equipment was amended by adding: 13

“Repair and replacement parts as used in this definition include all components or attachments used in 14

conjunction with the “durable medical equipment.” A member state may exclude from repair and replacement 15

parts items which are for single patient use only.” 16

“Grooming and hygiene products” are soaps and cleaning solutions, shampoo, toothpaste, 17

mouthwash, antiperspirants, and sun tan lotions and screens, regardless of whether the items 18

meet the definition of “over-the-counter-drugs.” 19

“Mobility enhancing equipment” means equipment including repair and replacement parts to 20

same, but does not include “durable medical equipment,” which: 21

A. Is primarily and customarily used to provide or increase the ability to move from one 22

place to another and which is appropriate for use either in a home or a motor vehicle; 23

and 24

B. Is not generally used by persons with normal mobility; and 25

C. Does not include any motor vehicle or equipment on a motor vehicle normally provided 26

by a motor vehicle manufacturer. 27



“Over-the-counter-drug” means a drug that contains a label that identifies the product as a drug 30

as required by 21 C.F.R. § 201.66. A member state may exclude “grooming and hygiene 31

products” from this definition. The “over-the-counter-drug” label includes: 32

A. A “Drug Facts” panel; or 33 Streamlined Sales and Use Tax Agreement June 23, 2007

B. A statement of the “active ingredient(s)” with a list of those ingredients contained in the 1

compound, substance or preparation. 2

“Prescription” means an order, formula or recipe issued in any form of oral, written, electronic, 3

or other means of transmission by a duly licensed practitioner authorized by the laws of the 4

member state. 5

“Prosthetic device” means a replacement, corrective, or supportive device including repair and 6

replacement parts for same worn on or in the body to: 7

A. Artificially replace a missing portion of the body; 8

B. Prevent or correct physical deformity or malfunction; or 9

C. Support a weak or deformed portion of the body. 10

A member state may exclude any or all of the following from the definition of “prosthetic 11

device:” 12

A. Corrective eyeglasses; 13

B. Contact lenses; 14

C. Hearing aids; and 15

D. Dental prosthesis. 16



19

TELECOMMUNICATIONS (Effective on and after January 1, 2008) 20

Tax Base/Exemption Terms 21 22 “Ancillary services” means services that are associated with or incidental to the provision of 23

“telecommunications services”, including but not limited to “detailed telecommunications 24

billing”, “directory assistance”, “vertical service”, and “voice mail services”. 25

“Conference bridging service” means an “ancillary service” that links two or more participants 26

of an audio or video conference call and may include the provision of a telephone number. 27

“Conference bridging service” does not include the “telecommunications services” used to reach 28

the conference bridge. 29

Streamlined Sales and Use Tax Agreement June 23, 2007

“Detailed telecommunications billing service” means an “ancillary service” of separately 1

stating information pertaining to individual calls on a customer’s billing statement. 2

“Directory assistance” means an “ancillary service” of providing telephone number 3

information, and/or address information. 4

“Vertical service” means an “ancillary service” that is offered in connection with one or more 5

“telecommunications services”, which offers advanced calling features that allow customers to 6

identify callers and to manage multiple calls and call connections, including “conference 7

bridging services”. 8

“Voice mail service” means an “ancillary service” that enables the customer to store, send or 9

receive recorded messages. “Voice mail service” does not include any “vertical services” that 10

the customer may be required to have in order to utilize the “voice mail service”. 11

“Telecommunications service” means the electronic transmission, conveyance, or routing of 12

voice, data, audio, video, or any other information or signals to a point, or between or among 13

points. The term “telecommunications service” includes such transmission, conveyance, or 14

routing in which computer processing applications are used to act on the form, code or protocol 15

of the content for purposes of transmission, conveyance or routing without regard to whether 16

such service is referred to as voice over Internet protocol services or is classified by the Federal 17

Communications Commission as enhanced or value added. “Telecommunications service” does 18

not include: 19

A. Data processing and information services that allow data to be generated, acquired, 20

stored, processed, or retrieved and delivered by an electronic transmission to a purchaser 21

where such purchaser’s primary purpose for the underlying transaction is the processed 22

data or information; 23

B. Installation or maintenance of wiring or equipment on a customer’s premises; 24

C. Tangible personal property; 25

D. Advertising, including but not limited to directory advertising. 26

E. Billing and collection services provided to third parties; 27

F. Internet access service; 28

G. Radio and television audio and video programming services, regardless of the medium, 29

including the furnishing of transmission, conveyance and routing of such services by the 30


programming service provider. Radio and television audio and video programming 1

services shall include but not be limited to cable service as defined in 47 USC 522(6) and 2

audio and video programming services delivered by commercial mobile radio service 3

providers, as defined in 47 CFR 20.3; 4

H. “Ancillary services”; or 5

I. Digital products “delivered electronically”, including but not limited to software, music, 6

video, reading materials or ring tones. 7

“800 service” means a “telecommunications service” that allows a caller to dial a toll-free 8

number without incurring a charge for the call. The service is typically marketed under the name 9

“800”, “855”, “866”, “877”, and “888” toll-free calling, and any subsequent numbers designated 10

by the Federal Communications Commission. 11

“900 service” means an inbound toll “telecommunications service” purchased by a subscriber 12

that allows the subscriber’s customers to call in to the subscriber’s prerecorded announcement or 13

live service. “900 service” does not include the charge for: collection services provided by the 14

seller of the “telecommunications services” to the subscriber, or service or product sold by the 15

subscriber to the subscriber’s customer. The service is typically marketed under the name “900” 16

service, and any subsequent numbers designated by the Federal Communications Commission. 17

“Fixed wireless service” means a “telecommunications service” that provides radio 18

communication between fixed points. 19

“Mobile wireless service” means a “telecommunications service” that is transmitted, conveyed 20

or routed regardless of the technology used, whereby the origination and/or termination points of 21

the transmission, conveyance or routing are not fixed, including, by way of example only, 22

“telecommunications services” that are provided by a commercial mobile radio service provider. 23

“Paging service” means a “telecommunications service” that provides transmission of coded 24

radio signals for the purpose of activating specific pagers; such transmissions may include 25

messages and/or sounds. 26

“Prepaid calling service” means the right to access exclusively “telecommunications services”, 27

which must be paid for in advance and which enables the origination of calls using an access 28

number or authorization code, whether manually or electronically dialed, and that is sold in 29

predetermined units or dollars of which the number declines with use in a known amount. 30


“Prepaid wireless calling service” means a “telecommunications service” that provides the 1

right to utilize “mobile wireless service” as well as other non-telecommunications services 2

including the download of digital products “delivered electronically”, content and “ancillary 3

services”, which must be paid for in advance that is sold in predetermined units of dollars of 4

which the number declines with use in a known amount. 5

“Private communications service” means a “telecommunications service” that entitles the 6

customer to exclusive or priority use of a communications channel or group of channels between 7

or among termination points, regardless of the manner in which such channel or channels are 8

connected, and includes switching capacity, extension lines, stations, and any other associated 9

services that are provided in connection with the use of such channel or channels. 10

“Value-added non-voice data service” means a service that otherwise meets the definition of 11

“telecommunications services” in which computer processing applications are used to act on the 12

form, content, code, or protocol of the information or data primarily for a purpose other than 13

transmission, conveyance or routing. 14

Modifiers of Sales Tax Base/Exemption Terms 15

The following terms can be used to further delineate the type of “telecommunications service” to 16

be taxed or exempted. The terms would be used with the broader terms and subcategories 17

delineated above. 18

“Coin-operated telephone service” means a “telecommunications service” paid for by inserting 19

money into a telephone accepting direct deposits of money to operate. 20

“International” means a “telecommunications service” that originates or terminates in the 21

United States and terminates or originates outside the United States, respectively. United States 22

includes the District of Columbia or a U.S. territory or possession. 23

“Interstate” means a “telecommunications service” that originates in one United States state, or 24

a United States territory or possession, and terminates in a different United States state or a 25

United States territory or possession. 26

“Intrastate” means a “telecommunications service” that originates in one United States state or 27

a United States territory or possession, and terminates in the same United States state or a United 28

States territory or possession. 29


“Pay telephone service” means a “telecommunications service” provided through any pay 1

telephone. 2

“Residential telecommunications service” means a “telecommunications service” or “ancillary 3

services” provided to an individual for personal use at a residential address, including an 4

individual dwelling unit such as an apartment. In the case of institutions where individuals 5

reside, such as schools or nursing homes, “telecommunications service” is considered residential 6

if it is provided to and paid for by an individual resident rather than the institution. 7

8

The terms “ancillary services” and “telecommunications service” are defined as a broad range of 9

services. The terms “ancillary services” and “telecommunications service” are broader than the 10

sum of the subcategories. Definitions of subcategories of “ancillary services” and 11

“telecommunications service” can be used by a member state alone or in combination with other 12

subcategories to define a narrower tax base than the definitions of “ancillary services” and 13

“telecommunications service” would imply. The subcategories can also be used by a member 14

state to provide exemptions for certain subcategories of the more broadly defined terms. 15

A member state that specifically imposes tax on, or exempts from tax, local telephone or local 16

telecommunications service may define “local service” in any manner in accordance with 17

Section 327 of the Agreement, except as limited by other sections of this Agreement. 18

Compiler’s note: On April 16, 2005 the telecommunications definitions were added to the Agreement. Member 19

states shall adopt and utilize these definitions no later than January 1, 2008. 20


1

PART III 2

Sales Tax Holiday Definitions 3

The definitions in this Part are only applicable for the purpose of administration of a sales tax 4

holiday, as defined in Section 322 (A). 5

6

"Eligible property" means an item of a type, such as clothing, that qualifies for a sales tax 7

holiday exemption in a member state. 8

"Layaway sale" means a transaction in which property is set aside for future delivery to a 9

customer who makes a deposit, agrees to pay the balance of the purchase price over a 10

period of time, and, at the end of the payment period, receives the property. An order is 11

accepted for layaway by the seller, when the seller removes the property from normal 12

inventory or clearly identifies the property as sold to the purchaser. 13

"Rain check" means the seller allows a customer to purchase an item at a certain price at 14

a later time because the particular item was out of stock. 15

“School supply” is an item commonly used by a student in a course of study. The term is 16

mutually exclusive of the terms “school art supply,” “school instructional material,” and “school 17

computer supply,” and may be taxed differently. The following is an all-inclusive list: 18

A. Binders; 19

B. Book bags; 20

C. Calculators; 21

D. Cellophane tape; 22

E. Blackboard chalk; 23

F. Compasses; 24

G. Composition books; 25

H. Crayons; 26

I. Erasers; 27

J. Folders; expandable, pocket, plastic, and manila; 28

K. Glue, paste, and paste sticks; 29

L. Highlighters; 30 Streamlined Sales and Use Tax Agreement Page 107 June 23, 2007

M. Index cards; 1

N. Index card boxes; 2

O. Legal pads; 3

P. Lunch boxes; 4

Q. Markers; 5

R. Notebooks; 6

S. Paper; loose leaf ruled notebook paper, copy paper, graph paper, tracing paper, manila 7

paper, colored paper, poster board, and construction paper; 8

T. Pencil boxes and other school supply boxes; 9

U. Pencil sharpeners; 10

V. Pencils; 11

W. Pens; 12

X. Protractors; 13

Y. Rulers; 14

Z. Scissors; and 15

AA. Writing tablets. 16

“School art supply” is an item commonly used by a student in a course of study for artwork. 17

The term is mutually exclusive of the terms “school supply,” “school instructional material,” and 18

“school computer supply,” and may be taxed differently. The following is an all-inclusive list: 19

A. Clay and glazes; 20

B. Paints; acrylic, tempora, and oil; 21

C. Paintbrushes for artwork; 22

D. Sketch and drawing pads; and 23

E. Watercolors. 24

“School instructional material” is written material commonly used by a student in a course of 25

study as a reference and to learn the subject being taught. The term is mutually exclusive of the 26

terms “school supply,” “school art supply,” and “school computer supply,” and may be taxed 27

differently. The following is an all-inclusive list: 28

A. Reference books; 29

B. Reference maps and globes; 30


C. Textbooks; and 1

D. Workbooks. 2

“School computer supply” is an item commonly used by a student in a course of study in which 3

a computer is used. The term is mutually exclusive of the terms “school supply,” “school art 4

supply,” and “school instructional material,” and may be taxed differently. The following is an 5

all-inclusive list: 6

A. Computer storage media; diskettes, compact disks; 7

B. Handheld electronic schedulers, except devices that are cellular phones; 8

C. Personal digital assistants, except devices that are cellular phones; 9

D. Computer printers; and 10

E. Printer supplies for computers; printer paper, printer ink. 11


Appendix D 1

LIBRARY OF INTERPRETATIONS 2

3 Interpretation 2006-01 4

(Adopted April 18, 2006) 5 6 This Interpretation Recommendation is made to the Governing Board by the Compliance Review 7 and Interpretations Committee this 2nd day of February, 2006 in accordance with Article IX, Rule 8 902 of Rules and Procedures adopted by the Streamlined Sales Tax Governing Board, Inc. 9 10 The party requesting the interpretation is RSM McGladrey, Inc. of Cedar Rapids, Iowa. The 11 request was made by letter dated November 23, 2005, and was made pursuant to the provisions 12 for expedited consideration contained in Rule 902 at subsection H. 13 14 Issue 15 16 The issue presented is an interpretation of Agreement section 402 pertaining to amnesty. The 17 specific question presented was whether amnesty is available to a seller for tax not collected, if 18 the seller has collected an amount of tax in a state, but failed to remit it. The seller otherwise 19 meets the qualifications prescribed in section 402. The issue was presented with an 20 acknowledgement that tax collected must be remitted with applicable penalties and interest as a 21 precondition to receiving amnesty. 22 23 Public Comment 24 25 No written public comments were received. 26 27 Recommendation 28 29 By unanimous consent the Compliance Review and Interpretations Committee submits to the 30 Governing Board a recommendation that a seller who has collected tax in a member state may 31 obtain amnesty for taxes not collected in that state or any member state in accordance with the 32 terms of Agreement section 402. The Committee further recommends that tax collected from 33 purchasers in a member state must be remitted with applicable penalty and interest to that 34 member state as a condition of receiving amnesty. This condition is in addition to those 35 conditions specifically enumerated in section 402 of the Agreement. 36 37 Rationale 38 39 A plain reading of Agreement section 402 requires a state to provide amnesty for “uncollected or 40 unpaid sales or use tax”. A similar plain reading of the disqualifying language contained in 41 subsection 402C limits disqualification to “sales or use taxes already paid or remitted to the state 42 or to taxes collected by the seller.” As the seller has not collected the taxes at issue, amnesty is 43


available despite the fact that the seller collected taxes on other sales which will not qualify for 1 amnesty. 2 3 Committee Members 4 5 Larry Wilkie, Committee Chair; Myles Vosberg, Andy Sabol, Tony Mastin, Dan Noble, Tom 6 Conley representing Joseph VanDevender, and Dale Vettel. 7 8

Interpretation 2006-02 9 (Adopted April 18, 2006) 10

11 This Interpretation Recommendation is made to the Governing Board by the Compliance Review 12 and Interpretations Committee this 2nd day of February 2006 in accordance with Article IX, Rule 13 902 of the Rules and Procedures adopted by the Streamlined Sales Tax Governing Board, Inc. 14 15 The party requesting the interpretation is Department of Treasury, State of Michigan, of Lansing 16 Michigan. The request was made by letter dated January 4, 2006, and was made pursuant to the 17 provisions for expedited consideration contained in Rule 902 H. 18 19 Issue 20 21 The issue presented is an interpretation of Agreement section 402 pertaining to amnesty. The 22 questions presented related to when a seller is considered registered under the Agreement for 23 purposes of eligibility for amnesty when a seller has registered through the central registration 24 system and indicated that it will make use of a model 1 or model 2 seller for those periods when 25 a certified service provider (CSP) or a certified automated system (CAS) have not been deemed 26 available by the Executive Committee of the Governing Board. The specific questions presented 27 are as follows: 28

(1) When will a model 1 or model 2 seller be deemed to have “registered under the 29 Agreement” as provided in Section 211 of the Agreement? 30

(2) When will a model 1 or model 2 seller be required to begin collecting and remitting sales 31 or use taxes to member states as provided in Section 401(B) of the Agreement? 32

(3) When will a model 1 or model 2 seller be denied amnesty because they have received a 33 notice of the commencement of an audit as provided in Section 402(B) of the 34

Agreement? 35 36 Public Comment 37 38 No written public comments were received. 39 40 Recommendation 41 42 By unanimous consent the Compliance Review and Interpretations Committee submits to the 43 Governing Board the following recommendations: 44

(1) A model 1 or model 2 seller will be “registered under the Agreement”: 45


(a) on a date that follows the act of making application for registration through the 1 central registration system, and 2

(b) the date that they begin, or are required to begin, collecting a member state’s sales 3 or use tax. 4

(2) A model 1 or model 2 seller will be required to begin collecting and remitting sales or use 5 taxes in a member state on the first day of the calendar month after 60 days notice that 6 adequate CSP or CAS services are available as determined by the Executive Committee 7 of the Governing Board. 8

(3) A model 1 or model 2 seller will be denied amnesty in a member state pursuant to 9 Section 402(B) as having received a notice of audit only if that notice of audit is received 10 on a date that precedes the date the seller made application for registration through the 11 central registration system. 12

13 Rationale 14 15 The basis for the recommended interpretations is the inability of a model 1 or model 2 seller to 16 collect and remit sales and use taxes until these technology models are deemed to be available 17 for use by the Executive Committee of the Governing Board. A registration through the central 18 registration system should not be considered complete until a model 1 or model 2 seller begins to 19 collect or is required to begin to collect a member states’ sales or use tax. These interpretations 20 are consistent with the Position on Amnesty adopted by the Governing Board on November 9, 21 2005. 22 23 Committee Members 24 25 Larry Wilkie, Committee Chair, Tom Conley, representing Joe VanDevender, Tony Mastin, Dan 26 Noble, Andy Sabol, Dale Vettel, and Myles Vosberg. 27 28 29


32 This Interpretation Recommendation is made to the Governing Board by the Compliance Review 33 and Interpretations Committee this 16th day of February 2006 in accordance with Article IX, 34 Rule 902 of the Rules and Procedures adopted by the Streamlined Sales Tax Governing Board, 35 Inc. 36 37 The party requesting the interpretation is the State of Indiana, Tom Conley, Indiana Delegate, 38 State and Local Advisory Council. The request was made by letter dated January 5, 2006, and 39 was made pursuant to the provisions for expedited consideration contained in Rule 902 H. 40 41 Issue 42 43


The issue presented is an interpretation of Agreement Article III, Section 310, Subsection C, 1 Clause 1 pertaining to sourcing of initial lease payments made to dealers. The quoted section of 2 the agreement reads as follows: 3 4

For a lease or rental that requires recurring periodic payments, each periodic payment is 5 sourced to the primary property location. The primary property location shall be as 6 indicated by an address for the property provided by the lessee that is available to the 7 lessor from its records maintained in the ordinary course of business, when use of this 8 address does not constitute bad faith. This location shall not be altered by intermittent 9 use at different locations. 10 11

Indiana is requesting an interpretation on the sourcing of initial payments (down payments, 12 rebates or other potentially taxable receipts) paid to the seller at the time the lease is negotiated 13 between the seller and purchaser. Are these payments considered a recurring periodic payment 14 and sourced in accordance with Section 310(C)? 15 16 Recommendation 17 18 By unanimous consent the Compliance Review and Interpretations Committee submits to the 19 Governing Board the following recommendation: 20 21 Article III, Section 310, Subsection C, of the Agreement should be interpreted to include 22 payments received at the inception of a lease (down payments, rebates or other potentially 23 taxable receipts) as periodic payments and sourced to the primary property location consistent 24 with the sourcing of the remaining periodic payments. 25 26 Rationale 27 28 The committee contacted the automobile associations of their various states. The associations 29 reported that their leasing organizations vary in the way that the receipts collected at the 30 inception of the lease are currently sourced. Some source the receipts to the primary property 31 location while others source the receipts to the dealer’s location. The committee believed that 32 the intent of the original sourcing rule was to establish a single location for sourcing all 33 payments. The proposed interpretation would be consistent with what we believed to be the 34 intent of the rule. The interpretation would also eliminate the confusion that currently seems to 35 exist related to this issue. 36 37 Committee Members 38 39 Cathy Wicks representing Larry Wilkie, Tom Conley, representing Joe VanDevender, Tony 40 Mastin, Dan Noble, Andy Sabol, Dale Vettel, Acting Committee Chair, and Myles Vosberg. 41 42


45


This Interpretation Recommendation is made to the Governing Board by the Compliance Review 1 and Interpretations Committee this 13th day of April 2006 in accordance with Article IX, Rule 2 902 of Rules and Procedures adopted by the Streamlined Sales Tax Governing Board, Inc. 3 4 The party requesting the interpretation is Brinker International on behalf of the National 5 Association of Convenience Stores, Council on State Taxation, Darden Restaurants, Food 6 Marketing Institute, Indiana Grocery & Convenience Store Association, Marathon Petroleum 7 Company, Marsh Supermarket Pharmacy, Minnesota Grocers Association, Speedway, Starbucks 8 Coffee, Target, Utah Food Industry Association and Yum! Brands, Incorporated. The request 9 was made by letter dated January 9, 2006, and was made pursuant to the provisions for expedited 10 consideration contained in Rule 902 at subsection H. 11 12 Issue 13 14 The issue presented is an interpretation of definition of “food sold with eating utensils provided 15 by the seller” found in section C of the prepared food definition found in Appendix C, Part II. 16 17 Public Comment 18 19 Public comments were received from both industry and state agencies. 20 21 Recommendation 22 23 The Compliance Review and Interpretations Committee submits to the Governing Board a 24 recommendation that the definition of “food sold with eating utensils” be interpreted as specified 25 in the State and Local Advisory Council paper on “Prepared Food Re-Visited Updated April 13, 26 2006.” This paper was distributed with Diane Hardt’s e-mail dated April 13, 2006 with revised 27 documents for the Streamlined Sales Tax Governing Board meeting in Indianapolis, Indiana on 28 April 18, 2006. Committee members have agreed, by a vote of five to one, that they can support 29 the proposal as presented, provided states are given adequate time to promulgate regulations, 30 make legislative changes, or prepare other published guidance as each state determines is 31 necessary to adopt the language proposed. 32 33 Rationale 34 35 The Compliance Review and Interpretations Committee finds itself in a difficult situation with 36 this request for interpretation and its subsequent determination of support of the proposal. 37 38 All members recognize the need to come to agreement on how to interpret the subject language. 39 Committee members, as well as other states and business representatives involved in the 40 discussions, have indicated support for the proposal. The Committee commends business 41 members and state members for their diligent efforts in bringing this proposal to the table. 42 43 Concern was expressed by some Committee members that the language in the proposal goes 44 beyond an interpretation of the existing language in the definition and, in some states, would 45


require legislative changes. Committee member, Tony Mastin, noted that using the Black’s Law 1 Dictionary definition of the word “provided” would be an allowable interpretation of the current 2 language. Business representatives expressed concern that using a dictionary definition would 3 not provide the necessary guidance to administer the provision and would result in states 4 adopting different interpretations of the meaning of the phrase. 5 6 The Committee is seeking advice from the Governing Board on whether this interpretation goes 7 beyond the scope of an interpretation of the current definition. If so, the Committee asks for 8 advice from the Governing Board on how to proceed. The options discussed, if this is not an 9 interpretation, were either an amendment to the Agreement or a rule. 10 11 Committee Members 12 13 Larry Wilkie, Committee Chair; Myles Vosberg, Andy Sabol, Tony Mastin, Dan Noble, Tom 14 Conley representing Joseph VanDevender, and Dale Vettel. 15 16

State and Local Advisory Council 17 Prepared Food Re-Visited 18 Updated April 13, 2006 19

20 21

SSTP approved several interpretations of the food definitions at its meeting on January 6, 2005. 22 The approved interpretations are included in an Issue Paper titled “Food Definition Issues” on 23 the Streamlined web site at www.streamlinedsalestax.org. SSTP interpreted “provided by the 24 seller” with respect to utensils as: 25 26

1. Utensils need only be made available to purchasers if a seller’s sales of prepared 27 food in A and B of the definition (except items 1 through 3 that a state chooses to 28 exclude), soft drinks, and alcohol beverages at an establishment are more than 29 75% of the seller’s total sales at the establishment. 30

31 2. For sellers other than in 1., the seller’s customary practice is to give the utensil to 32

the purchaser, except that plates, glasses, or cups necessary for the purchaser to 33 receive the food or food ingredients need only be made available. 34

35 Also, SSTP addressed utensils provided by persons other than the seller and resold by a seller as 36 follows: 37 38

Although a person other than the seller may have originally placed the utensil in 39 the package, the seller provides it to the purchaser when it transfers the package to 40 the purchaser. Therefore, in the examples provided (caterer sells a boxed lunch 41 with utensils to a concessionaire who sells the boxed lunch; food manufacturer 42 packages ready-to-eat lunch with utensils and sells to a grocer who sells the 43 lunch), utensils are provided by the seller. 44

45


The Food Marketing Institute and a number of interested parties submitted a request for 1 interpretation to the Compliance Review and Interpretations Committee (CRIC) on January 6, 2 2006. CRIC has requested the State and Local Advisory Council (SLAC) of the Streamlined 3 Governing Board to further address the prepared food interpretation issue. 4 5 At the SLAC meeting on January 7-8, 2006, a work group discussed concerns about the SSTP 6 approved interpretation and identified solutions. Business representatives reviewed those 7 solutions and recommended minor changes. The proposed interpretation is as follows: 8 9

I. We will maintain the 75% test for sellers but modify how the numerator and 10 denominator are calculated so that like businesses (single purpose coffee shop v. 11 coffee shop in a bookstore) are treated the same. 12

13 II. The numerator would include sales of (a) prepared food if under A and B of the 14

definition of prepared food; and (b) food where plates, bowls, glasses or cups are 15 necessary to receive the food (e.g., dispensed milk, salad bar). Alcoholic 16 beverages are not included in the numerator. 17

18 III. The denominator would include sales of all food and food ingredients, including 19

prepared food, candy, dietary supplements, and soft drinks. Alcoholic beverages 20 are not included in the denominator. 21

22 IV. For sellers with a sales percentage of 75% or less, utensils are provided by the 23

seller if the seller’s practice for the item (as represented by the seller) is to 24 physically give or hand the utensil to the purchaser, except that plates, bowls, 25 glasses, or cups necessary for the purchaser to receive the food (e.g., dispensed 26 milk, salad bar) need only be made available. 27

28 V. For sellers with a sales percentage greater than 75%, utensils are provided by the 29

seller if they are made available to purchasers. 30 31

VI. For sellers with a sales percentage greater than 75% and who sell items that 32 contain four (4) or more servings packaged as one item sold for a single price, an 33 item does not become prepared food due to the seller having utensils available. 34 However, if the seller provides utensils for the item as in 4 above, then the item is 35 considered prepared food. Whenever available, serving sizes will be determined 36 based on a label on an item sold. If no label is available, a seller will reasonably 37 determine the number of servings in an item. 38

39 VII. When a seller sells food items that have a utensil placed in a package by a person 40

other than the seller, and that person’s NAICS classification code is that of 41 manufacturers (sector 311), the seller shall not be considered to have provided the 42 utensil except as provided in 4-6 above . For any other packager with any other 43 NAICS classification code (e.g., sector 722 for caterers), the seller shall be 44 considered to have provided the utensil. 45


1 VIII. The prepared food sales percentage will be calculated by the seller for each tax 2

year or business fiscal year, based on the seller’s data from the prior tax year or 3 business fiscal year, as soon as possible after accounting records are available, but 4 not later than 90 days after the beginning of the tax or business fiscal year. 5

6 IX. A single prepared food sales percentage will be determined annually, for all of the 7

seller’s establishments in a state. 8 9

X. A new business will make a good faith estimate of their prepared food sales 10 percentage for their first year. A new business should adjust its good faith 11 estimate prospectively after the first three months of operation if actual prepared 12 food sales percentages materially affect the 75% threshold test. 13

14 If states concur that the above interpretation of “food sold with eating utensils provided by the 15 seller’” requires an amendment to the Agreement or time to implement the interpretation, then a 16 temporary interpretation must be offered now so that sellers of prepared food can determine tax 17 treatments under laws enacted by states that are in compliance with the Streamlined Sales and 18 Use Tax Agreement. The Governing Board states will be surveyed to determine if they can or 19 cannot support the following uniform interpretation. If a Governing Board state cannot support 20 this interpretation, the Governing Board state will be asked to explain its interpretation. The 21 results of the survey will be presented to the Governing Board at its meeting in April. 22 23

“Food sold with eating utensils provided by the seller” means the seller’s practice for 24 the item is to physically give or hand the utensil to the purchaser. 25

26 Note: Black’s Law Dictionary defines “provide” as to make, procure, or furnish for future use, 27 prepare. To supply; to afford; to contribute. 28 29

Interpretation 2006-05 30 (Adopted August 29, 2006) 31

32 This Interpretation Recommendation is made to the Governing Board by the Compliance Review 33 and Interpretations Committee this 27th day of April, 2006 in accordance with Article IX, Rule 34 902 of Rules and Procedures adopted by the Streamlined Sales Tax Governing Board, Inc. 35 36 The party requesting the interpretation is George S. Isaacson of Brann & Isaacson, of Lewiston 37 Maine. The request was made by letter dated March 31, 2006, and was made pursuant to the 38 provisions for expedited consideration contained in Rule 902 at subsection H. 39 40 Issue 41 42 The first issue presented is an interpretation of the definition of “clothing” found in Appendix C, 43 Part II of the Streamlined Sales and Use Tax Agreement. The specific question is: Do articles of 44 human wearing apparel suitable for general use that are made from fur or hide on the pelt (i.e., 45


animal skins with hair, fleece or fur fibers attached) constitute “clothing” within the meaning of 1 the Agreement? 2 3 The second issue presented is an interpretation of Section 327(C) of the Agreement which 4 requires a member state to impose sales or use tax on all products or services included within 5 each definition or to exempt from sales or use tax all products or services within each definition. 6 The specific question is, if human wearing apparel made from fur and suitable for general use 7 constitutes “clothing” as defined in the SSUTA, must a member state, under Section 327 of the 8 Agreement, treat fur clothing in the same manner as all other clothing? 9 10 The third issue presented is whether Minnesota’s general exemption from sales and use tax for 11 clothing, and the imposition of a separate gross revenues tax on fur clothing results in Minnesota 12 being in violation of Section 327 (C) of the agreement. 13 14 Public Comment 15 16 No written public comments were received. 17 18 Recommendation 19 20 By unanimous consent the Compliance Review and Interpretations Committee submits to the 21 Governing Board the following recommendations regarding the above three issues: 22

1. Appendix C, Part II of the Streamlined Sales and Use Tax Agreement defines clothing as 23 human wearing apparel suitable for general use. An article made from fur or hide on the 24 pelt that is wearing apparel suitable for general use, is not excluded from the definition of 25 clothing. 26

27 2. Clothing made with fur must be treated in the same manner as other clothing. A state can 28

choose to impose the sales tax on all articles of clothing, or it may choose to exempt all 29 articles of clothing. A state cannot choose to apply the sales tax to some articles of 30 clothing and exempt other articles of clothing. 31

32 3. The third question concerns whether Minnesota is in violation of Section 327 (C) of the 33

Agreement. The Agreement pertains only to sales and use taxes. Imposition of 34 Minnesota’s gross revenue tax on articles of fur clothing does not constitute a violation of 35 Section 327 (C) of the Agreement. 36

37 Rationale 38 39

1. The committee reviewed the definition of clothing and determined that articles of 40 clothing made from fur or hide on the pelt are not excluded from the definition of 41 clothing. There is no language in the definition or the Agreement that qualifies or restricts 42 the definition of clothing based on the materials that are used to produce the clothing. 43

44


2. The committee reviewed Section 327 of the Agreement. Section 327 requires that except 1 as specifically provided in Section 316 and any applicable definition, a member state 2 must either impose its sales and use taxes on all products or services within a definition, 3 or exempt all products or services within a definition. 4

5 3. Minnesota exempts all clothing from the sales and use tax. Minnesota does not impose a 6

sales tax on articles of clothing made with fur or hide on the pelt (Minnesota Statutes, 7 Chapter 297A (General Sales and Use Taxes)). Minnesota imposes a separate gross 8 revenues tax on fur clothing (Minnesota Statutes, Chapter 295 (Gross Revenues and 9 Gross Receipts Taxes)). This is not in violation of any provision of the Agreement. It is a 10 separate tax from the sales tax and is imposed on the gross receipts of the furrier for sales 11 in Minnesota. Article I, Section 104 of the agreement provides that the definition of a 12 term is not intended to influence the interpretation or application of that term with respect 13 to other tax types. 14

15 Committee Members 16 17 Larry Wilkie, Committee Chair, Tony Mastin, Dan Noble, Andy Sabol, Joe VanDevender, Dale 18 Vettel, and Myles Vosberg. 19 20


23 This Interpretation Recommendation is made to the Governing Board by the Compliance Review 24 and Interpretations Committee this 22nd day of June, 2006 in accordance with Article IX, Rule 25 902 of Rules and Procedures adopted by the Streamlined Sales Tax Governing Board, Inc. 26 27 The party requesting the interpretation is William Riesenberger of the Ohio Department of 28 Taxation, Sales and Use Tax Division. The request was made by letter dated January 25, 2006. 29 Expedited consideration available under Rule 902, subsection H was not requested. 30 31 Issue 32 33 The issue presented is an interpretation of Agreement section 402 pertaining to amnesty. The 34 question presented was whether a company that has a physical presence in a state continues to be 35 eligible for amnesty in that same state if it deregisters in the other member and associate member 36 states. Amnesty was originally granted under section 402 of the agreement when the company 37 registered to collect tax through the streamlined sales tax central registration system. 38 39 Public Comment 40 41 No written public comments were received. 42 43 Recommendation 44 45


By unanimous consent the Compliance Review and Interpretations Committee submits to the 1 Governing Board a recommendation that a seller who has deregistered to collect tax in any 2 member state within thirty-six months of its registration is no longer eligible for amnesty in any 3 member state or associate member state under section 402 of the Agreement including states 4 where the seller has a physical presence. 5 6 Rationale 7 8 Section 402A(1) of the agreement provides amnesty for uncollected or unpaid sales or use tax to 9 a seller that registers to pay or to collect and remit applicable sales or use tax in accordance with 10 the terms of the agreement. In addition, section 402D states the amnesty is fully effective as 11 long as the seller continues registration and continues payment or collection and remittance of 12 applicable sales or use taxes for a period of at least thirty-six months. A seller that deregisters 13 within thirty-six months of its registration does not meet the requirements of Section 402D and, 14 therefore, forfeits the amnesty provided under the agreement in all member and associate 15 member states including any state where registration is continued. Notice of deregistration is 16 made through the central registration system to all member and associate member states. 17 18 Committee Members 19 20 Larry Wilkie, Committee Chair; Myles Vosberg, Andy Sabol, Tony Mastin, Dan Noble, Tom 21 Conley representing Joseph VanDevender, and Dale Vettel. 22 23


26 This Interpretation Recommendation is made to the Governing Board by the Compliance Review 27 and Interpretations Committee this 24th day of August, 2006 in accordance with Article IX, Rule 28 902 of the Rules and Procedures adopted by the Streamlined Sales Tax Governing Board, Inc. 29 30 The party requesting the interpretation is the Software Finance & Tax Executives Council 31 (SoFTEC) represented by Mark Nebergall of 1150 17th Street NW # 601, Washington DC 20036. 32 The request was made on the prescribed form on April 11, 2006 and was made pursuant to the 33 provisions for consideration contained in Rule 902 at subsection (D). SoFTEC provided 34 supplemental information in support of the interpretation and to provide clarification of the scope 35 of the interpretation request. 36 37 Issue 38 39 SoFTEC raises three issues associated with Section 312A, Multiple Points of Use, effective on 40 and after January 1, 2008, of the Streamlined Sales and Use Tax Agreement (SSUTA). Each of 41 the issues involves the interpretation of the phrase “concurrently available for use in more than 42 one jurisdiction” and its application to three specific fact patterns involving the sale of software 43 and service. We list the fact patterns first and then the issues associated with each fact pattern 44 exactly as presented in the interpretation request. 45


1 Fact Pattern (1): Software Company sells software that can be loaded onto Customer’s 2 server and can be accessed and used concurrently by Customer’s employees located in 3 several states. The only copy of the software received by the Customer is the one loaded 4 onto the Customer’s server. No subsequent copies of the software are made and sent to 5 employees in other states. 6 7 Fact Pattern (2): Software is loaded onto Software Company’s server and Software 8 Company sells access to the software to Customer. Customer’s employees gain concurrent 9 access to the software from multiple locations. No copy of the software is ever delivered to 10 the Customer. 11 12 Fact Pattern (3): A copy of a computer program is licensed by Software Company to 13 Customer along with the right to make multiple copies of the software which will be 14 delivered to Customer’s users/employees in multiple jurisdictions. 15

16 Issue (1): “Is software loaded onto a server located in a single state that can be accessed by 17 users in several states “concurrently available for use in more than one jurisdiction” within 18 the meaning of Section 312A of the Agreement?” 19

Issue (2): “Is delivery of a copy of the computer program to the customer necessary to 20 invoke the “concurrently available for use in more than one jurisdiction” language of Section 21 312A?” 22

Issue (3): “Is a license of a copy of a computer program that allows the licensee/customer to 23 make copies of the software that will be used in more than one jurisdiction by the customer 24 “concurrently available for use in more than one jurisdiction” within the meaning of Section 25 312A?” 26

Public Comment 27

Public comment was received from both industry and state agencies. 28

Recommendation 29

By unanimous vote the Compliance Review and Interpretations Committee submits to the 30 Governing Board the following interpretation recommendation regarding the above three issues. 31 It is important to note that the committee’s recommendation departs from SoFTEC’s proposed 32 interpretation as it relates to issues one and three by incorporating clarifications provided by 33 SoFTEC in supplemental memorandums. This interpretation recommendation does not take a 34 position on whether the transactions described in the fact patterns are sales of computer software 35 or whether they are sales of services since this distinction is not important to the question of 36 whether the purchases are considered to be concurrently available for use in multiple 37 jurisdictions. 38


It is also important to note that regardless of the fact situation, a seller is not relieved of its 1 obligation to collect and remit sales or use tax on otherwise taxable transactions, unless the 2 purchaser delivers to the seller an exemption form claiming direct pay or multiple points of use. 3

E. The purchase of software loaded onto a server located in a single state that will be 4 available for access by employees in multiple jurisdictions is concurrently 5 available for use in more that one jurisdiction within the meaning of Section 312A 6 of the Agreement if the purchaser knows at the time of its purchase that the 7 software will be concurrently available for use in multiple jurisdictions. 8

F. Delivery of a copy of a computer program is not necessary to invoke the 9 “concurrently available for use in more than one jurisdiction” language of Section 10 312A. 11

G. The purchase of a license of a copy of a computer program that allows the 12 licensee/customer to make copies of the software that will be used in more than 13 one jurisdiction by the customer is concurrently available for use in more than one 14 jurisdiction within the meaning of Section 312A of the Agreement if the 15 purchaser knows at the time of its purchase that the software will be concurrently 16 available for use in multiple jurisdictions. 17

Rationale 18

1. The critical component of Section 312A is the direction provided to both the seller and 19 purchaser. The term “concurrently available for use” has clear meaning: “concurrently” 20 (occurring at the same time); “available for use” (that can be used). Applying the clear 21 meaning of the term “concurrently available for use” to the specific fact pattern 22 described, the purchased item is considered to be concurrently available for use in 23 multiple jurisdictions within the meaning of Section 312A. 24

2. The delivery of a copy of a computer program is not specifically enumerated in Section 25 312A as a trigger for invoking the “concurrently available for use” language. 26

3. See item 1. The same rationale applies here. 27

Committee members 28

Larry Wilkie, Committee Chair, Dale Vettel, Vice Chair, Tony Mastin, Dan Noble, Andy Sabol, 29 Joe VanDevender, and Myles Vosberg. 30

Compiler’s note: On December 14, 2006 Section 312 was repealed. 31

32

Interpretation 2006-08 33 (Adopted December 14, 2006) 34

35


This Interpretation Recommendation is made to the Governing Board by the Compliance Review 1 and Interpretations Committee this 17th day of August, 2006 in accordance with Article IX, Rule 2 902 of the Rules and Procedures adopted by the Streamlined Sales Tax Governing Board, Inc. 3 4 The party requesting the interpretation is Jane Page of the South Dakota Department of Revenue. 5 The request was made on the prescribed form on June 7, 2006 and was made pursuant to the 6 provisions for consideration contained in Rule 902 at subsection (D). 7 8 Issue 9 10 The issue presented is an interpretation of Agreement section 402 pertaining to amnesty. The 11 question presented was whether a registrant must remain registered with each state for a period 12 of thirty-six months from the date that the state becomes a member. 13 14 The situation described involved a seller that registers through the streamlined sales tax central 15 registration system with all member states on October 1, 2005. A new state becomes a member 16 October 1, 2008. The seller cancels registration with all states effective December 1, 2008. 17 18 The seller in the situation described above was registered for a total of thirty-eight months, but 19 only two months in the new state. Does the seller retain amnesty with the new member state? 20 21 Public Comment 22

No written public comments were received. 23

Recommendation 24

The Compliance Review and Interpretations Committee submits to the Governing Board a 25 recommendation that a seller who deregisters to collect tax in a member state within thirty-six 26 months of that state becoming a member is no longer eligible for amnesty in that new member 27 state under Section 402 of the agreement. However, the seller retains amnesty with all member 28 states in which they were registered for at least thirty-six months, provided they meet all of the 29 other requirements of Section 402 of the agreement. 30

Rationale 31

Section 402A(1) of the agreement provides amnesty for uncollected or unpaid sales or use tax to 32 a seller that registered to pay or to collect and remit applicable sales or use tax in accordance 33 with the terms of the agreement. In addition, Section 402D states that the amnesty is fully 34 effective as long as the seller continues registration and continues payment or collection and 35 remittance of applicable sales or use taxes for a period of at least thirty-six months. Each 36 member state shall toll its statute of limitations applicable to asserting a tax liability during this 37 thirty-six month period. 38

A seller that deregisters within thirty-six months of the date that a state becomes a member does 39 not meet the requirements of section 402D and, therefore, forfeits the amnesty provided under 40


the agreement for that member state. Assuming that all other requirements of Section 402 are 1 met, the seller retains amnesty in the initial member states since they met the thirty-six month 2 registration requirement in those states. 3

Committee members 4


7


10 This Interpretation Recommendation is made to the Governing Board by the Compliance Review 11 and Interpretations Committee this 14th day of September, 2006 in accordance with Article IX, 12 Rule 902 of Rules and Procedures adopted by the Streamlined Sales Tax Governing Board, Inc. 13 14 The party requesting the interpretation is Suzanne Beaudelaire of Ernst & Young, LLP. The 15 request was made on the prescribed form dated August 16, 2006, and was made pursuant to the 16 provisions for expedited consideration contained in Rule 902 at subsection H. 17 18 Issue 19 20 The issue presented is an interpretation of Agreement section 402 pertaining to amnesty. The 21 question presented was whether companies (predecessor companies) would be eligible for 22 amnesty under Agreement section 402 if another company (successor company) acquired the 23 assets and liabilities of the predecessor companies and then registered to collect sales/use tax 24 through the SST central registration system. According to facts presented in the request, the 25 predecessor companies no longer exist, but would qualify for amnesty under Agreement section 26 402 if they still existed and they registered through the central registration system. 27 28 Public Comment 29 30 No written public comments were received. Ms. Beaudelaire’s discussion and response to the 31 committee’s questions during the September 14, 2006 meeting were the only oral comments 32 presented to the committee. Other issues regarding liability for sales/use tax related to 33 predecessor companies were raised during the discussion, but the following recommendation is 34 limited to the specific question addressed in Ms. Beaudelaire’s request. 35 36 Recommendation 37 38 By unanimous consent the Compliance Review and Interpretations Committee submits to the 39 Governing Board a recommendation that predecessor companies that do not register through the 40 central registration system are not eligible for amnesty under Agreement section 402. 41 42


Rationale 1 2 Section 402A(1) of the agreement provides amnesty for uncollected or unpaid sales or use tax to 3 a seller that registers to pay or to collect and remit applicable sales or use tax in accordance with 4 the terms of the agreement. The agreement language is clear that amnesty is not available to 5 companies that do not register under the agreement. 6 7 Committee Members 8 9 Larry Wilkie, Committee Chair; Myles Vosberg, Andy Sabol, Tony Mastin, Dan Noble, Tom 10 Conley representing Joseph VanDevender, and Dale Vettel. 11 12

Interpretation 2006-10 13 (Withdrawn December 14, 2006) 14

15 Interpretation 2006-11 16

(Adopted December 14, 2006) 17 18 This Interpretation Recommendation is made to the Governing Board by the Compliance Review 19 and Interpretations Committee this 26th day of October 2006 in accordance with Article IX, Rule 20 902 of the Rules and Procedures adopted by the Streamlined Sales Tax Governing Board, Inc. 21 22 The party requesting the interpretation is Mr. John Nugent of the Rhode Island Division of 23 Taxation. The request was made on the prescribed form dated October 6, 2006, and was made 24 pursuant to the provisions for expedited consideration contained in Rule 902 H. 25 26 Issue 27 28 The issue presented is an interpretation of Interpretation 2006-04 adopted on April 18, 2006 by 29 the Governing Board defining the term “food sold with eating utensils provided by the seller” for 30 purposes of the prepared food definition in the Agreement. The specific issue involves the 31 following language which is referred to as a “bulk serving” in the remainder of this document: 32 33 “For sellers with a sales percentage greater than 75% and who sell items that contain four (4) 34 or more servings packaged as one item sold for a single price, an item does not become 35 prepared food due to the seller having utensils available.” 36 37 The questions presented was whether the packaging by a seller of four or more bakery products 38 individually selected by a purchaser and sold for a single price meets the definition of “bulk 39 serving” as defined above. 40

41 Public Comment 42 43 Written public comments were received and are incorporated herein. 44 45


Recommendation 1 2 By unanimous consent the Compliance Review and Interpretations Committee submits to the 3 Governing Board the recommendation that packaging by a seller of four or more bakery products 4 individually selected by the purchaser and sold for a single price constitutes a bulk serving. 5 6 Rationale 7 8 Section VI of Interpretation 2006-04 provides, in part, the following: 9 “For sellers with a sales percentage greater than 75% and who sell items that contain four (4) or 10 more servings packaged as one item sold for a single price, an item does not become prepared 11 food due to the seller having utensils available…” 12 13 The “bulk servings” of Interpretation 2006-04 does not provide by whom the item must be 14 packaged, or that the item must be pre-packaged. Thus, for bakery products, all that is required is 15 that the item ultimately sold to the purchaser be a package of bakery products consisting of four 16 or more servings sold for a single price. The fact that the servings are individually selected by the 17 purchaser and packaged by the seller or the purchaser does not affect the transaction. The item 18 does not constitute prepared food even when sold by a seller whose sales percentage is greater 19 than 75% and who makes eating utensils available. 20 21 The Committee wishes to note that if the seller charges for each individual serving in the 22 package, the sale would not be of “one item sold for a single price.” It should be noted that the 23 same provision in Section VI of Interpretation 2006-04, which we are referring to as “bulk 24 serving,” does treat “bulk servings” as prepared food when the seller’s practice for the item (as 25 represented by the seller) is to physically hand the utensil to the purchaser, except that plates, 26 bowls, glasses, or cups necessary for the purchaser to receive food need only be made available. 27 28 Committee Members 29 30 Larry Wilkie, Committee Chair, Tom Conley, representing Joe VanDevender, Tony Mastin, Dan 31 Noble, Andy Sabol, Dale Vettel, and Myles Vosberg. 32 33


36 This Interpretation Recommendation is made to the Governing Board by the Compliance Review 37 and Interpretations Committee this 26th day of October, 2006 in accordance with Article IX, Rule 38 902 of the Rules and Procedures adopted by the Streamlined Sales Tax Governing Board, Inc. 39 40 The party requesting the interpretation is McCarter & English, LLP. The request was made on 41 the prescribed form on October 6, 2006 and was made pursuant to the provisions for 42 consideration contained in Rule 902, subsection (H). 43 44 Issue 45


1 The issue presented is an interpretation of the definition of “direct mail” found in Appendix C, 2 Part I of the Agreement. The specific question is whether billing invoices, return envelopes and 3 any additional marketing materials are included in the definition of “direct mail.” The definition 4 in question reads as follows: 5 6

“Direct mail” means printed material delivered or distributed by United States mail or other 7 delivery service to a mass audience or to addresses on a mailing list provided by the 8 purchaser or at the direction of the purchaser when the cost of the items are not billed directly 9 to the recipients. “Direct Mail” includes tangible personal property supplied directly or 10 indirectly by the purchaser to the direct mail seller for inclusion in the package containing the 11 printed material. “Direct mail” does not include multiple items of printed material delivered 12 to a single address. 13

The Interpretation Request provided the following background facts. A company in the business 14 of printing and mailing billing statements for clients in a wide variety of industries receives 15 customer data electronically and prints statements, letters, invoices and additional pages on 16 preprinted paper or forms to meet the client’s specifications. The printed material is sorted, 17 folded and inserted into envelopes, bundled based on zip codes and given to the United States 18 Postal Service for delivery. The mailed packet typically also will include a return envelope, 19 coupons and other marketing materials. 20 21 Public Comment 22

Written public comments were received from a state agency. 23

Recommendation 24

By majority vote, the Compliance Review and Interpretations Committee submits to the 25 Governing Board a recommendation that billing invoices, return envelopes and any additional 26 marketing materials included with the mailing are included in the definition of direct mail 27 provided the sale meets the criteria set out in the definition of direct mail. Joseph VanDevender, 28 Indiana Department of Revenue, abstained from the vote on this recommendation due to a 29 potential conflict of interest. 30

The criteria requires that the sale is of printed material delivered or distributed to a mass 31 audience or to addresses on a mailing list provided by the purchaser or at the direction of the 32 purchaser when the cost of the items are not billed directly to the recipients. 33

It is important to note that this definition applies only for the purposes of determining proper 34 sourcing, and for determining whether delivery charges are included in the taxable sales price of 35 the direct mail. 36

Rationale 37


A plain reading of the definition of direct mail supports the recommendation that billing 1 invoices, return envelopes and additional marketing materials included with the printed material 2 meets the definition of direct mail. However, the discussion surrounding this interpretation 3 request indicates that there is a misunderstanding about the intended use of the definition of 4 “direct mail.” 5

The definition is placed in the Administrative Definitions section of the Agreement purposely, 6 because it is not intended to be a product definition. The definition was created only to define the 7 term as used in the Direct Mail Sourcing provisions found in Section 313, and for the exclusion 8 from “delivery charges” allowed for charges for delivery of “direct mail.” 9

States may tax or exempt any service or sale of printed material included in the definition of 10 “direct mail” in any way they choose. For example, a state may impose sales and use tax on 11 charges to print billing invoices, and exempt charges to print advertising material, both of which 12 are included in the definition of direct mail. However, if the sale is taxable and includes mailing 13 or delivering the printed material to a mass audience or to addresses on a mailing list as stated in 14 the definition, it must be sourced under the provisions of Section 313, and the exclusion for 15 delivery charges allowed applies if a member state has adopted that exclusion. 16

Committee members 17


20

Interpretation 2007-01 21 (Adopted June 23, 2007) 22

23 This Interpretative Opinion Recommendation is made to the Governing Board by the 24 Compliance Review and Interpretations Committee on March 29, 2007, in accordance with 25 Article IX, Rule 902 of the Rules and Procedures adopted by the Streamlined Sales Tax 26 Governing Board, Inc. 27 28 The party requesting the interpretation is Mr. Phil Schlesinger of Avalara. The request was made 29 on the prescribed form on February 12, 2007, and was made pursuant to the provisions for 30 consideration contained in Rule 902, subsection (H). 31 32 Issue 33 34 The issue presented is an interpretation of the definition of “drug” in Appendix C, Part II of the 35 Agreement. The specific question is whether the word “drug” is limited to an item or liquid that 36 is consumed internally by the person or used externally on a person, or does it possibly extend 37 beyond this in the context of item B of the definition to include medical supplies such as 38 “Infectious Disease Testing Kits” that are intended to be used in the diagnosis of a disease. 39 40


Public Comment 1

No written public comments were received. 2

Recommendation 3

The Compliance Review and Interpretations Committee submits to the Governing Board a 4 recommendation that infectious disease testing kits do not meet the definition of “drug.” 5 However, reagents, which are a component of the infectious disease test kits, do meet the 6 definition of “drug.” The infectious disease test kits are made up of two or more distinct and 7 identifiable products and are sold for one non-itemized price, which may or may not be a 8 bundled transaction, depending on the tax laws in the state to which the sale is sourced. Since 9 this will vary from state to state, the Committee recommends that each state make a 10 determination of whether the sale of infectious disease test kits are taxable transactions according 11 to the laws of their state. 12

Rationale 13

The definition of “drug” found in Appendix C, Part II, of the Agreement does not require the 14 item to be internally consumed or externally applied to the patient in order for the definition to 15 apply. However, in order to qualify as a drug it must meet at least one of the provisions provided 16 in A, B, or C of the definition, and it must also meet the basic definition in the first paragraph: 17 “Drug” means a compound, substance or preparation, and any component of a compound, 18 substance or preparation, other than “food and food ingredients,” “dietary supplements” or 19 “alcoholic beverages.” 20

To take the position that an item qualifies as a drug merely because the item is intended to be 21 used in the diagnosis, cure, mitigation, treatment, or prevention of disease, as described in B of 22 the definition, would expand the definition of drug to include much of what is defined as durable 23 medical equipment. For example, dialysis equipment is used in the treatment of disease, but is 24 not a drug, because it is not a “compound, substance or preparation.” 25

The infectious disease test kits in question contain a chemical (reagents) and other items such as 26 slides, plastic trays and droppers. The chemicals are also sold separately from the kits. 27 Committee members agree that the chemicals meet the definition of “drug,” but the other items 28 in the kit do not. Since the infectious disease test kits contain two or more distinct and 29 identifiable products and are sold for one non-itemized price, the sale of the test kits may be a 30 bundled transaction. Business representatives pointed out that the test kits in question are just 31 one of many different test kits sold by various manufacturers for use by medical professionals. 32 Each type of kit sold will contain different items with different costs for the components, so the 33 results may differ for each type of kit. To make a determination about a specific test kit, one 34 must know the contents of the kit and the seller’s purchase price or sales price of each item 35 included in the kit. Whether sales and use tax applies to the sale of a bundled transaction, or to 36 the sale of a transaction that meets the de minimis test, is based on the laws in the state to which 37 the sale is sourced. 38


Committee members 1

Larry Wilkie, Committee Chair, Dale Vettel, Vice Chair, Tony Mastin, Andy Sabol, Joe 2 VanDevender, Myles Vosberg and Delegate John Doyle 3

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1

CONTRACT BETWEEN

STREAMLINED SALES TAX GOVERNING BOARD, INC. AND

COMPANY A

This Contract, by and between STREAMLINED SALES TAX GOVERNING BOARD, INC., hereinafter referred to as the “Governing Board” and __________, hereinafter referred to as the “Contractor,” is entered into as of the 1st day of June, 2006 (the “Effective Date”), and is for the Contractor’s provision of services as a Certified Service Provider pursuant to the Streamlined Sales and Use Tax Agreement, as amended, and as further defined in Section B, SCOPE OF SERVICES.

RECITALS WHEREAS, the Streamlined Sales Tax Project was created by and is comprised of participating governmental authorities (collectively, the Member States and Associate Member States) for the purpose of developing measures to design, test and implement a sales and use tax system that simplifies and modernizes the collection and remittance of sales and use taxes throughout the United States; and WHEREAS, the Governing Board is a nonprofit corporation incorporated in the State of Indiana with authority to oversee, manage, and implement the Streamlined Sales and Use Tax Agreement, and is located at: Streamlined Sales Tax Governing Board, Inc. 4205 Hillsboro Pike, Suite 305 Nashville, TN 37215 and WHEREAS, the Governing Board is authorized under the Streamlined Sales and Use Tax Agreement to enter into this Contract on behalf of the Member States and Associate Member States, with the exception of the State of North Carolina, which is entering into a separate agreement with the Contractor for the provision of CSP services and is authorizing the Governing Board to administer the contract on its behalf, and WHEREAS, the Contractor is a corporation incorporated in the State of ________, and is located at: and WHEREAS, the Governing Board believes that many sellers of goods and services in the United States would benefit from technical assistance in collecting and remitting

2

sales and use taxes to the Member States and Associate Member States that comprise the Streamlined Sales and Use Tax Agreement; and WHEREAS, the Governing Board seeks to facilitate the collection and remittance of sales and use taxes by contracting with entities that can provide technical assistance to sellers who choose to use their services; and WHEREAS, the Contractor seeks to be designated as a Certified Service Provider under the Streamlined Sales and Use Tax Agreement with authority to provide such technical assistance to sellers of goods and services in Member States and Associate Member States that are participating in the agreement. Now therefore, THE GOVERNING BOARD AND THE CONTRACTOR, AS PARTIES TO THIS CONTRACT AND IN CONSIDERATION OF THE MUTUAL PROMISES CONTAINED HEREIN, AGREE AS FOLLOWS: Upon execution of this Contract by both parties and approval of the Contract by the Governing Board, the Contractor is hereby certified by the Governing Board as a Certified Service Provider as of the Effective Date, having met the certification standards as adopted by the Governing Board and documents issued pursuant thereto. A. DEFINITIONS: Except where the context requires otherwise, the following definitions shall apply in this Contract. A.1. Associate Member State means a state or other governmental authority that has petitioned for membership in the SSUTA and has been designated as an Associate Member State pursuant to the SSUTA, Section 704, Subsections B and C. A.2. Automated System means the software system and processes utilized by the Contractor in the performance of the services provided under this Contract. A.3. CSP or Certified Service Provider means an entity certified as such under this Contract. A.4. Certification Committee means the committee appointed by the Governing Board to advise the Governing Board on matters pertaining to the evaluation, testing, certification and recertification of service providers and automated systems. A.5. Member State means a state or other governmental authority that has petitioned for membership in the SSUTA and has been found to be in compliance with the requirements of the SSUTA pursuant to Section 805 of such agreement. A.6. RFP means the Request for Proposal issued by the Streamlined Sales Tax Conforming States’ Committee on November 1, 2004 and re-issued September 20, 2005 (Exhibit B).

3

A.7. Seller means a person making sales, leases, or rentals of personal property or services who contracts with the Contractor for the performance of services by the Contractor as a Certified Service Provider. A.8. Seller Taxes means sales and use taxes due and owing to a Member State or Associate Member State from a Seller with whom the Contractor has agreed to perform tax calculating and reporting services. A.9. SSUTA means the multi-state Agreement known as the Streamlined Sales and Use Tax Agreement adopted November 12, 2002, as subsequently amended (Exhibit A). A.10. Streamlined Sales Tax Conforming States Committee means the committee of the Streamlined Sales Tax Implementing States that was assigned the responsibility of issuing the RFP. A.11. Streamlined Sales Tax Implementing States means the body referred to as such in Section 703 of the SSUTA. B. SCOPE OF SERVICES: B.1. General. Except as otherwise provided in this section, the Contractor agrees to and shall perform all of the sales and use tax functions of each Seller with whom it contracts as a CSP, other than such Seller’s obligation to remit tax on its own purchases, for each Member State and Associate Member State in which the Seller is registered to collect sales and use tax. If the Seller is not registered as a Volunteer Seller, as defined in Section D.2(b), in a Member State or Associate Member State, the Seller and the Contractor may agree that the Contractor will not provide CSP services on behalf of the Seller in that Member State or Associate Member State. In such case, within ten (10) business days after agreeing with the Seller not to provide the CSP services, the Contractor shall notify each affected Member State and Associate Member State that it is not providing CSP services on behalf of that Seller. B.2. Services of a Certified Service Provider. The Contractor shall undertake, on behalf of each Seller with whom it contracts to provide such services, all functions and services mandated of Certified Service Providers under the terms of the SSUTA, each Member State’s or Associate Member State’s laws, the RFP, the Streamlined Sales Tax Governing Board, Inc. Rules and Procedures, all interpretations of the SSUTA issued by the Governing Board pursuant to Section 902 of the SSUTA and Rule 902 of the Streamlined Sales Tax Governing Board, Inc. Rules and Procedures, and this Contract. The Contractor shall execute a contract with each Seller addressing the services to be performed and shall include in such contract the following statement in capital letters in 12 point type or larger:

__________ HAS ENTERED INTO CONTRACTS WITH THE GOVERNING BOARD ESTABLISHED UNDER THE STREAMLINED SALES AND USE TAX AGREEMENT AND THE NORTH CAROLINA SECRETARY OF REVENUE. AS A PREREQUISITE TO ENTERING INTO THIS CONTRACT ___________ HAS CREATED A TAX CALCULATION SYSTEM SATISFACTORY TO AND

4

CERTIFIED BY THE GOVERNING BOARD AND THE NORTH CAROLINA SECRETARY OF REVENUE. IN ADDITION _________ HAS ASSUMED CERTAIN OTHER RESPONSIBILITIES AND OBLIGATIONS AS SET FORTH IN ITS CONTRACTS WITH THE GOVERNING BOARD AND THE NORTH CAROLINA SECRETARY OF REVENUE, THE STREAMLINED SALES AND USE TAX AGREEMENT AND THE LAWS OF THE STATES THAT ARE MEMBERS OF THE STREAMLINED SALES AND USE TAX AGREEMENT. AS PROVIDED IN THE CONTRACTS BETWEEN _________ AND THE GOVERNING BOARD AND BETWEEN __________ AND THE NORTH CAROLINA SECRETARY OF REVENUE, ___________ IS AUTHORIZED TO REPRESENT ITSELF AS A “CERTIFIED SERVICE PROVIDER” AND SERVE AS AN AGENT FOR SELLERS WHO DESIRE TO REGISTER AND PARTICIPATE IN THE STREAMLINED SALES AND USE TAX AGREEMENT. NOTHING IN EITHER THE CONTRACTS BETWEEN THE GOVERNING BOARD AND ___________ AND THE NORTH CAROLINA SECRETARY OF REVENUE AND ___________ OR THE STREAMLINED SALES USE TAX AGREEMENT ESTABLISHES ANY RIGHT OR ENTITLEMENT IN SELLERS CONTRACTING WITH ___________. A SELLER’S RIGHTS AND ENTITLEMENTS WITH RESPECT TO ___________ ARE ESTABLISHED AND GOVERNED BY THIS CONTRACT WITH ____________. A SELLER’S RIGHTS AND OBLIGATIONS WITH RESPECT TO ANY OF THE MEMBER STATES ARE DETERMINED BY THE LAWS OF EACH MEMBER STATE.

B.3. SSUTA Section 501 Certification Requirements. Without limiting the obligations of the Contractor set forth in Section B.2, the Contractor shall: (a) Use an Automated System. Nothing in this Contract authorizes the Contractor or any other person to sell, license, use or allow others to use the Automated System for purposes other than those necessary for the performance of this Contract, without the written authorization of the Governing Board; provided, however, that the Contractor shall not be prohibited from using the Automated System for other purposes so long as the Contractor does not represent or imply that the system is certified, approved, or endorsed for such use by the Governing Board. (b) Integrate the Automated System with the system of a Seller for whom the Contractor provides tax calculating and reporting services so that the tax that is due on a sale, if any, is determined at the time of the sale; (c) File tax returns and informational returns as provided for in Section 318 of the SSUTA on behalf of each Seller for whom it provides tax calculating and reporting services, and remit the Seller Taxes at the time and in the manner specified by the Governing Board, each Member State, and each Associate Member State in which the Seller is registered to collect sales and use tax; (d) Protect the privacy of tax information it obtains in accordance with Section 321 of the SSUTA; and

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(e) Maintain compliance with the provisions of the Minimum Standards for Certification document attached to this Contract as Exhibit C and as the Governing Board may modify from time to time. B.4. Services Not Covered. The Parties recognize that the Contractor may provide services to Sellers beyond those covered in Sections B.1, B.2, and B.3 of this Contract. These may include, but are not limited to: (a) General accounting services, (b) Invoice preparation, billing and accounts receivable collection services, (c) Tax calculation or reporting services unrelated to the Seller’s sales and use tax functions with respect to its sales, and (d) Consulting services. Such services are not within the Scope of Services provided in Sections B.1, B.2, and B.3 of this Contract and neither the Governing Board nor any Member State or Associate Member State certifies, approves, or recommends the Contractor as a provider of such services. B.5. Exclusions. The Governing Board recognizes that the Contractor may provide services similar to those described in Sections B.1, B.2, and B.3 of this Contract to: (a) Sellers collecting taxes for states that are not Member States or Associate Member States, (b) Persons as defined in Section 208 of the SSUTA that are not registered through the Streamlined Central Registration System, and (c) Persons as defined in Section 208 of the SSUTA that are not Model 1 Sellers pursuant to Section 205 of the SSUTA. Such services are not within the Scope of Services provided in Sections B.1, B.2, and B.3 of this Contract and neither the Governing Board nor any Member State or Associate Member State certifies, approves, or recommends the Contractor as a provider of such services. C. CONTRACT TERM: C.1. Contract Term. This Contract shall be effective for two years from the Effective Date. The Governing Board shall have no obligation for services rendered by the Contractor which are not performed within the specified period. C.2. Term Extension. The Governing Board reserves the right to extend this Contract for an additional period or periods of time representing increments of no more than one (1) year and a total contract term of no more than four (4) years, provided that the Contractor satisfies the minimum standards for CSP certification then in effect and the Governing Board notifies the Contractor in writing of its intention to do so at least thirty (30) days prior to the Contract expiration date. C.3. No Obligation to Re-certify or Extend. The Governing Board has no obligation to extend the Contract beyond its initial term or to re-certify the Contractor as a CSP. Decisions whether or not to extend or re-certify are within the sole discretion of the Governing Board and are not subject to review. Under no circumstances shall the

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Governing Board, Member States, or Associate Member States be liable for any claim, liability, loss, damage, or injury to the Contractor or to any other person resulting directly or indirectly from a decision whether or not to extend the Contract or to re-certify. The Contractor shall indemnify and hold harmless the Governing Board, Member States, and Associate Member States, and each of their officers, directors, agents, representatives, and employees from and against any claim or suit arising or resulting from such decisions. D. COMPENSATION:

D.1. General. The Contractor shall be compensated in accordance with the terms of this Contract and the provisions of compensation set forth in this Section D. The Contractor shall receive compensation only for services provided to a Volunteer Seller in a Member State or Associate Member State. The compensation provided for in this Section D shall be the full and total compensation that the Contractor receives for providing services to Volunteer Sellers.

D.2. Definitions. The definitions herein are included only for purposes of computing compensation for the Contractor under this Contract. These definitions do not constitute a conclusion or an admission by the Governing Board, Member States or Associate Member States that a Seller has or does not have a legal obligation to collect sales or use taxes in any Member State or Associate Member State. Compensation under the Contract is for services rendered by the Contractor and is not payment to a seller for the administration of any state or local sales tax.

(a) Taxes Due means sales and use taxes that are due to a Member State or Associate Member State from sales of a Volunteer Seller in the Member State or Associate Member State which are processed by the Contractor, net of any debits or credits to the Member State or Associate Member State required under applicable law and related to transactions processed by the Contractor after the Effective Date of this Contract.

(b) Volunteer Seller in a Member State or Associate Member State means a Seller that has registered pursuant to Article IV of SSUTA through the Central Registration System and:

(1) Represented in its registration that it did not have a legal requirement to register and in fact did not have a requirement to register in the Member State or Associate Member State at the time of registration, regardless of any previous registration the Seller may have made in the Member State or Associate Member State; or

(2) For Sellers who registered with the Member State or Associate Member State after November 12, 2002, the Seller meets all of the following criteria during the twelve (12) month period immediately preceding the date of registration with the Member State or Associate Member State:

a. no fixed place of business for more than thirty (30) days in the Member State or Associate Member State;

b. less than $50,000 of Property, as defined below, in the Member State or Associate Member State;

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c. less than $50,000 of Payroll, as defined below, in the Member State or Associate Member State; and

d. less than twenty-five percent (25%) of its total Property or total Payroll, as defined below, in the Member State or Associate Member State.

Notwithstanding subsection (b)(2) above, any Seller that registered in a Member State or Associate Member State after November 12, 2002 and prior to October 1, 2005, is not considered a Volunteer Seller for that Member State or Associate Member State, if the Seller had a legal requirement to register as a result of administrative, legislative, or judicial action in the state occurring prior to the date of the Seller’s registration.

(c) For purposes of subsection (b)(2), “Property” and “Payroll” are defined as follows:

(1) “Property” is the Average Value of the Seller’s real property and tangible personal property owned or rented by the Seller. Property owned by the Seller is valued at its original cost basis. Property rented by the Seller is valued at eight times the net annual rental rate. Net annual rental rate is the annual rental rate paid by the Seller less any annual rental rate received by the Seller from sub-rentals. The “Average Value” of Property shall be determined by averaging the values at the beginning and end of the twelve (12) month period immediately preceding the date of registration with the Member State or Associate Member State.

(2) “Payroll” is the total amount paid by the Seller for Compensation during the twelve (12) month period immediately preceding the date of registration with the Member State or Associate Member State. “Compensation” means wages, salaries, commissions and any other form of remuneration paid to employees and defined as gross income under Internal Revenue Code §61. Compensation is paid in a Member State or Associate Member State if (1) the individual’s service is performed entirely within the Member State or Associate Member State, (2) the individual’s service is performed both within and outside the Member State or Associate Member State, but the service performed outside the Member State or Associate Member State is incidental to the individual’s service within the Member State or Associate Member State, or (3) some of the service is performed in the Member State or Associate Member State and (a) the base of operations, or if there is no base of operations, the place from which the service is directed or controlled, is in the Member State or Associate Member State, or (b) the base of operations or the place from which the service is directed or controlled is not in any state in which some part of the service is performed, but the individual’s residence is in the Member State or Associate Member State.

D.3. Losing Volunteer Seller Status. A Volunteer Seller shall lose its status as a Volunteer Seller in a Member State or Associate Member State if:

(a) as a result of activities the Seller conducts in a Member State or Associate Member State after the date of the Seller’s registration in the Member State or Associate Member State, the Seller becomes legally obligated to register in that Member State or Associate Member State; and

(b) as a result of activities the Seller conducts in a Member State or Associate Member State after the date of the Seller’s registration in the Member State or

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Associate Member State, the Seller fails to meet one or more of the criteria under subsection D.2(b)(2) above in that Member State or Associate Member State. For purposes of determining whether the Seller meets the criteria, the “Average Value” of Property shall be determined by averaging the values at the beginning and end of the last fiscal year of the Seller that terminates at least thirty (30) days before the date the determination is made; and Payroll shall be the total amount paid by the Seller for Compensation during the last fiscal year of the Seller that terminates at least thirty (30) days before the date the determination is made.

D.4. Reporting Requirements. At the expiration of the twenty-four (24) month period after the date on which any CSP began remitting Taxes Due from each Seller for whom the Contractor is performing CSP services, and at each twelve (12) month interval thereafter, the Contractor shall obtain from each Seller a statement of its status in each Member State and Associate Member State. If the statement indicates that a Seller is no longer a Volunteer Seller in a Member State or Associate Member State, the Contractor shall notify each affected Member State and Associate Member State that a change in status has occurred for that Seller. The Contractor shall send such notifications no later than ten (10) business days after receipt of the statement from the Seller. The Contractor shall include in its agreement with Sellers an obligation to report their status in writing within thirty (30) days of the Contractor's request.

D.5. Compensation Formula. Compensation rates are based upon the volume of Taxes Due from each Volunteer Seller with whom the Contractor agrees to provide services as a CSP. Compensation to the Contractor shall be paid in accordance with the formula set forth below. (a) For the first $250,000 of Taxes Due from each Volunteer Seller to all Member States and Associate Member States combined, the Contractor shall be allowed compensation in an amount equal to eight percent (8%) of the Taxes Due. The remainder shall be remitted to the Member States and Associate Member States. (b) For Taxes Due from each Volunteer Seller to all Member States and Associate Member States combined that exceed $250,000 but total no more than $1,000,000, the Contractor shall be allowed compensation in an amount equal to seven percent (7%) of the Taxes Due. The remainder shall be remitted to the Member States and Associate Member States. (c) For Taxes Due from each Volunteer Seller to all Member States and Associate Member States combined that exceed $1,000,000 but total no more than $2,500,000, the Contractor shall be allowed compensation in an amount equal to six percent (6%) of the Taxes Due. The remainder shall be remitted to the Member States and Associate Member States. (d) For Taxes Due from each Volunteer Seller to all Member States and Associate Member States combined that exceed $2,500,000 but total no more than $5,000,000, the Contractor shall be allowed compensation in an amount equal to five percent (5%) of the Taxes Due. The remainder shall be remitted to the Member States and Associate Member States. (e) For Taxes Due from each Volunteer Seller to all Member States and Associate Member States combined that exceed $5,000,000 but total no more than $10,000,000,

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the Contractor shall be allowed compensation in an amount equal to four percent (4%) of the Taxes Due. The remainder shall be remitted to the Member States and Associate Member States. (f) For Taxes Due from each Volunteer Seller to all Member States and Associate Member States combined that exceed $10,000,000 but total no more than $25,000,000, the Contractor shall be allowed compensation in an amount equal to three percent (3%) of the Taxes Due. The remainder shall be remitted to the Member States and Associate Member States. (g) For Taxes Due from each Volunteer Seller to all Member States and Associate Member States combined that exceed $25,000,000, the Contractor shall be allowed compensation in an amount equal to two percent (2%) of the Taxes Due. The remainder shall be remitted to the Member States and Associate Member States. (h) Notwithstanding the terms of the compensation formula set forth above, the Contractor shall retain only one and one-half percent (1.5%) of Taxes Due to the State of North Dakota on taxable sales made before July 1, 2007. In the event that applicable law in North Dakota is changed to allow for higher compensation rates, the Governing Board shall notify the Contractor of the change and its effective date. Taxes Due to North Dakota and processed by the Contractor shall be included in determining the rate adjustment levels in the compensation formula that applies to other Member States and Associate Member States. In the event that North Dakota does not enact legislation to conform with the compensation formula by the end of its 2007 legislative session, with such change applicable to taxable sales made no later than July 1, 2007, then the Contractor shall no longer be obligated to remit taxes to North Dakota under the Contract as of the date the 2007 legislative session ends. (i) For purposes of Sections D.5 and D.6, the combined Taxes Due from all Member States and Associate Member States that will result in a rate adjustment shall include all taxes due from volunteer sellers to the State of North Carolina under the separate agreement between the Contractor and the State of North Carolina for the Contractor’s provision of CSP services. D.6. Rate Adjustment Process. The combined Taxes Due for all the Member States and Associate Member States that will result in a rate adjustment shall include only sales and use taxes generated from sales sourced in accordance with sourcing rules in Article III of the SSUTA to a Member State or Associate Member State in which the Seller is a Volunteer Seller. As the amount of Taxes Due from each Volunteer Seller reaches a rate adjustment level, adjustments to compensation shall be made as soon as is practicable to avoid over compensation, but no later than the next tax remittance to the Member States and Associate Member States after the level has been reached. For example, if taxes are remitted monthly and the total amount of Taxes Due from a Volunteer Seller to all Member States and Associate Member States combined rises from $225,000 at the end of one month to $300,000 at the end of the following month, the Contractor shall receive eight percent (8%) of $25,000 ($2,000) and seven percent (7%) of $50,000 ($3,500) and the remainder ($69,500) shall be remitted to the Member States and Associate Member States for that month. Sales and use taxes on sales by that Seller sourced to Member States or Associate Member States in which the Seller is not a Volunteer Seller shall be disregarded in determining when a rate adjustment level has been reached.

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When remitting taxes for a reporting period in which an adjustment has been made, the Contractor shall make its best efforts to adjust the compensation rate in a manner that fairly allocates the rate change among the Member States and Associate Member States. Unless the Contractor uses a method that consistently applies the rate change more precisely, the adjustment shall be applied proportionately among the Member States and Associate Member States regardless of which individual purchases were made before or after the adjustment level was reached during the period. In the example, unless the Contractor uses a method for a more accurate allocation, the Contractor would charge all Member States and Associate Member States eight percent (8%) on one third of the taxes owed to each of them and seven percent (7%) on two-thirds of the taxes owed to each of them for that month. D.7. Resetting Rates Annually. Rates of compensation shall reset annually for services performed on behalf of each Volunteer Seller. Regardless of the total amount of Taxes Due from each Volunteer Seller to the Member States and Associate Member States during the previous year, the rate at the beginning of the following year shall return to eight percent (8%) on the first $250,000 of Taxes Due from each Volunteer Seller, and the rate shall adjust according to the formula set forth above. For purposes of resetting the compensation rate to eight percent (8%) annually, the one-year period for each Volunteer Seller begins on the first day of the month in which sales and use taxes are remitted for that Volunteer Seller to any Member States or Associate Member State, and a new year begins on each anniversary thereafter. D.8. Affiliated Sellers. For purposes of determining when a rate adjustment level is reached, affiliated Volunteer Sellers shall be treated as a single Volunteer Seller. Affiliated Volunteer Sellers shall be treated as a single Volunteer Seller if they would qualify as “related persons” under section 267(b) or 707(b) of the Internal Revenue Code. D.9. Non-Taxable Transactions. The Contractor shall not charge Volunteer Sellers a fee for processing non-taxable transactions unless non-taxable transactions exceed fifty percent (50%) of all transactions processed annually for a Volunteer Seller in a particular state. In its agreement with a Volunteer Seller, the Contractor may require a good faith estimate of the Volunteer Seller’s anticipated non-taxable transactions for the first twelve (12) months. If the anticipated percentage exceeds fifty percent (50%), the Contractor shall notify the Executive Director and may negotiate with the Volunteer Seller to determine a mutually agreeable fee for processing the non-taxable transactions for the first year. For subsequent years, if the actual percentage of non-taxable transactions exceeded fifty percent (50%) in the previous year, the Contractor shall notify the Executive Director and may negotiate with the Volunteer Seller to determine a mutually agreeable fee for processing the non-taxable transactions in the following year. D.10. Effect of Losing Volunteer Seller Status. If a Volunteer Seller loses its status as a Volunteer Seller in a Member State or Associate Member State for any reason, the Contractor shall not be required to refund compensation retained prior to notification of the change in status. On the first day of the month after receiving notice of a change in status, the Contractor shall no longer be entitled to retain compensation for processing sales and use taxes of such a Seller for the Member States and Associate Member States in which the Seller is no longer a Volunteer Seller; notwithstanding the foregoing, if a Volunteer Seller loses its status as a result of activities it conducts in a Member State

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or Associate Member State after entering into its first contract with a CSP, the Contractor shall continue to receive compensation for processing sales and use taxes for that Member State or Associate Member State for a period of twenty-four (24) months after the date on which the first CSP began remitting Taxes Due for that Seller to the Member State or Associate Member State. D.11. Additional Compensation. Individual Member States and Associate Member States may provide, in accordance with their own laws and procedures, compensation that supplements the compensation required under this Contract. Nothing herein suggests or implies that any supplements will be forthcoming. D.12. Other Compensation Formulas. The Governing Board may adopt other compensation formulas at a later time and, in its sole discretion, offer them to the Contractor as an alternative to the formula set forth in Section D. The Contractor may adopt or reject any alternative compensation formula. If the parties agree that an alternative compensation formula is in their mutual interest, the parties shall cooperate in transitioning to the new formula. D.13. Compensation Calculation Reports. The Contractor shall provide electronic reports to the Executive Committee on a quarterly basis that explain how the Contractor's compensation was calculated under the formula set forth in Section D. The report shall be due by the last day of the month following any calendar quarter in which the Contractor remitted Seller Taxes to any Member State or Associate Member State. Such reports shall be in a form sufficient to allow each Member State and Associate Member State to verify that the Contractor received the correct amount of compensation, computed at the correct rate, for services provided to each Seller per Member State and Associate Member State for whom the Contractor has collected or remitted taxes during that quarter. D.14. Effect of a State Becoming a New Member State or Associate Member State. If any state or other governmental authority that is not a Member State or Associate Member State on the Effective Date of this Contract becomes a Member State or Associate Member State during the term of this Contract, the Contractor shall provide tax collection and remittance services to those Sellers for whom it operates as a CSP in the new Member State or new Associate Member State, in the same manner it provides such services for collection and remittance of the sales and use taxes of the existing Member States and Associate Member States, from the effective date of the state or other governmental authority becoming a new Member State or new Associate Member State. The Governing Board shall encourage states and other governmental authorities seeking to become a new Member State or new Associate Member State to submit a proposed date of entry pursuant to Section 801 of the SSUTA that allows a reasonable period of time for the Contractor to provide all functions and services set forth in Section B of this Contract. The Contractor shall be compensated in the manner set forth in this Contract for services provided from the effective date of the state or other governmental authority becoming a Member State or Associate Member State. D.15. Effect of Withdrawal or Expulsion of a Member State or Associate Member State from the SSUTA. The Governing Board shall promptly notify the Contractor, if any Member State or Associate Member State either withdraws from the SSUTA or is

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expelled from the SSUTA, and the Contractor shall continue to provide tax collection and remittance services to those Sellers for whom it operates as a CSP in that Member State or Associate Member State for all transactions prior to the effective date of the withdrawal or expulsion. The Contractor will be compensated as provided in this Contract for services provided to Sellers for whom it operates as a CSP prior to the later of (i) the effective date of the withdrawal or expulsion of the Member State or Associate Member State, or (ii) fifteen (15) business days after the notice of such withdrawal or expulsion (the later date being the “Last Compensation Date”). For purposes of this section, the filing of a return or remittance of tax made after the Last Compensation Date that includes transactions occurring prior to the Last Compensation Date shall be treated as a service performed prior to the withdrawal or expulsion. D.16. Exceptions. The Contractor shall not receive compensation under the terms of this Contract for services that are not within the Scope of Services provided in Section B of this Contract. Nor shall the Contractor receive compensation under this Contract for services otherwise covered under this Contract that the Contractor provides to a Seller for Member States or Associate Member States in which the Seller is not a Volunteer Seller. D.17. Disclaimer. Nothing in this Contract shall be construed to modify federal or state law regarding a seller’s responsibility to collect or remit sales or use tax to a Member State or Associate Member State. E. GENERAL TERMS AND CONDITIONS: E.1. Liability for Unpaid Taxes. Sales and use taxes which are not remitted by the Contractor to the Member States or Associate Member States when due are delinquent. A Member State or an Associate Member State which has not received, pursuant to this Contract, full payment of Seller Taxes from the Contractor shall provide written notice of such delinquency to the Contractor. Subject to the provisions of Sections E.2, E.3 and E.4, if such Member State or Associate Member State has not received the delinquent taxes within ten (10) business days after the date of such written notice, the Contractor shall be in Breach of this Contract. In addition to any other remedies for Breach under this Contract, the Contractor shall not be entitled to compensation under Section D of this Contract for the delinquent taxes and shall be liable for the payment of the delinquent taxes to the Member State or Associate Member State, plus any additional charges or amounts that the laws of the Member State or Associate Member State impose for the nonpayment of sales and use taxes. Nothing herein shall prohibit the Contractor from providing, in its contracts with Sellers, for indemnification from Sellers to reimburse the Contractor for liability resulting from delinquent taxes, charges or other amounts to the extent that Seller Taxes are delinquent due to the actions or inactions of a Seller. E.2. Relief from Liability: Seller’s Failure to Remit. If the Seller does not remit to the Contractor all or part of the Seller Taxes when due, the Contractor shall notify each affected Member State and Associate Member State and the Seller of the failure to remit within ten (10) business days after the due date of the remittance to the Member State or Associate Member State. To the extent that sales and use taxes were not remitted by a Seller and such notice is provided, the Contractor shall be relieved of the obligation for payment of the applicable taxes for that reporting period due to the Member State or Associate Member State, plus any additional charges or amounts that the laws of the

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Member State or Associate Member State impose for the nonpayment of sales and use taxes, and the Contractor shall not have breached the Contract. Nothing in this Contract relieves a Seller from its sales and use tax obligations to a Member State or Associate Member State to the extent that the Seller has not remitted such taxes to the Contractor when due. Upon notification by a Member State or an Associate Member State that any Seller has failed to remedy the delinquencies for more than one payment period, the Contractor may discontinue providing services for that Seller. In the event services are discontinued, the Contractor shall discontinue providing services to the Seller for all Member States and Associate Member States in which the Contractor is receiving compensation under this Contract. The Contractor shall notify the Executive Director of the Governing Board that the Contractor has discontinued providing services to such a Seller. The Contractor will not be compensated pursuant to Section D of this Contract for services the Contractor continues to provide to such a Seller beyond sixty (60) days after such notification. E.3. Relief from Liability: Erroneous Data. Each Member State and Associate Member State shall, pursuant to the terms of SSUTA Sections 306 and 328, relieve the Contractor, and any Seller registered under the SSUTA with which the latter contracts, from liability to the states and their local jurisdictions for having charged and collected the incorrect amount of sales or use tax resulting from the Contractor or any of its SSUTA-registered contracting Sellers relying on erroneous data on tax rates, boundaries, or taxing jurisdiction assignments which have been listed in the state’s rates and boundaries databases, and erroneous data provided in the taxability matrix provided by the Member State or Associate Member State pursuant to Section 328. In accordance with SSUTA, each Member State and Associate Member State shall review and certify that the Automated System utilized by the Contractor determines accurately whether or not a category of items or transactions listed in the Automated System is exempt from tax in accordance with each state’s law. Prior to January 1, 2008, to the extent allowed by the law of each Member State and Associate Member State, Member States and Associate Member States shall relieve the Contractor, and any Seller registered under the SSUTA with which the latter contracts, from liability to the state and their local jurisdictions for having charged and collected the incorrect amount of sales or use tax resulting from the Contractor or any of its SSUTA-registered contracting Sellers relying on certification of erroneous data on the taxability of a category of items or transactions.

The Contractor shall have ten (10) days from the date of notification by a Member State or Associate Member State to revise the Automated System to conform with changes to: the tax rates, boundaries, or taxing jurisdiction assignments which have been listed in the state’s rates and boundaries databases; the taxability matrix provided by the Member State or Associate Member State pursuant to Section 328 of the SSUTA; and the classification of the taxability of a category of items or transactions pursuant to Section 502 of the SSUTA. In the event the Contractor fails to make such changes, beginning on the eleventh day after notification the Contractor shall be liable for failure to collect the correct amount of Seller Taxes owed to the Member State or Associate Member State, plus any additional charges or amounts that the laws of the Member State or Associate Member State impose for the nonpayment of sales and use taxes, and shall be in Breach of this Contract.

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The Governing Board, Member States and Associate Member States are not responsible for mapping, which is defined as classification of an item or transaction within a certified category. The Contractor is liable for mapping errors resulting in failure to collect the correct amount of Seller Taxes owed to the Member State or Associate Member State, plus any additional charges or amounts that the laws of the Member State or Associate Member State impose for the nonpayment of sales and use taxes. Nothing herein shall prohibit the Contractor from providing, in its contracts with Sellers, for indemnification from Sellers to reimburse the Contractor for liability resulting from mapping errors to the extent that such errors are due to the actions or inactions of a Seller. E.4. Relief from Liability: Certification Compliance. The Contractor shall not be liable for the failure to remit Seller Taxes when due, or for any additional charges or amounts that the laws of the Member State or Associate Member State impose for the nonpayment of sales and use taxes, to the extent that (a) the laws of a Member State or Associate Member State relieve the Contractor or the Seller from liability to the state and its local jurisdictions for having remitted the incorrect amount of sales or use tax and (b) the incorrect amount resulted from the Contractor’s reasonable reliance on an issue made available for review but not discovered in the certification process. If both (a) and (b) are satisfied, the Contractor’s sole obligation and liability for such unpaid taxes shall be to correct the issue within a reasonable amount of time (not to exceed ten (10) days unless an extension is granted by the Executive Committee) from receipt of the Member State’s and Associate Member State’s notice of the incorrect amounts. In the event the Contractor is unable to correct the issue causing the incorrect amounts to be charged and collected, beginning on the first day after the time allotted in the previous sentence the Contractor shall be liable for failure to collect the correct amount of Seller Taxes owed to the Member State or Associate Member State, plus any additional charges or amounts that the laws of the Member State or Associate Member State impose for the nonpayment of sales and use taxes, and shall be in Breach of this Contract. If the incorrect amount resulted from the Contractor’s reasonable reliance on an issue made available for review but not discovered in the certification process, but the laws of a Member State or Associate Member State do not relieve the Seller from liability to the state and its local jurisdictions for having collected the incorrect amount of sales or use tax, the Contractor shall be liable for failure to collect the correct amount of Seller Taxes owed to the Member State or Associate Member State, plus any additional charges or amounts that the laws of the Member State or Associate Member State impose for the nonpayment of sales and use taxes. A Member State or Associate Member State that has not received the correct amount shall provide written notice to the Contractor. If the Member State or Associate Member State has not received the unpaid amount within ten (10) business days after receipt of the notice, the Contractor shall be in Breach of the Contract. Nothing herein shall prohibit the Contractor from providing, in its contracts with Sellers, for indemnification from Sellers to reimburse the Contractor for its liability under this paragraph. E.5. Termination by Mutual Consent. This Contract may be terminated at any time by mutual written consent of the parties, with the writing signed by a person or persons authorized to execute the Contract and bind the party to the Contract termination. Unless the Governing Board otherwise determines, such termination shall not be effective until the first day of the month that is at least sixty (60) days after the Contractor

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has provided written notice of the intended termination to all Sellers for whom the Contractor is providing services as of the date of written consent. A schedule documenting the date, time, and Seller representative to whom notice was given shall be maintained by the Contractor and made available to the Governing Board upon request. E.6. Breach. A party shall be deemed to have breached the Contract if any of the following occurs, and for purposes of this Contract, these items shall hereinafter be referred to as a “Breach”:

(a) failure to perform in accordance with any term or provision of the Contract; (b) partial performance of any term or provision of the Contract; (c) any act prohibited or restricted by the Contract; or (d) violation of any warranty.

Notwithstanding the foregoing, neither party shall be deemed in Breach for actions required by changes to the terms of the SSUTA, changes to the membership of the SSUTA, or changes to any state or federal law. The parties agree that all legal and equitable remedies, including without limitation, termination of this Contract, injunctive relief and specific performance, are appropriate remedies to redress any Breach or threatened Breach of this Contract by the Contractor. Except for breaches of confidentiality obligations and infringement of intellectual property rights (Section E.35), in the event of Breach by the Governing Board, damages shall not exceed the amount of compensation owed to the Contractor pursuant to Section D. The Contractor shall not be entitled to consequential or exemplary damages for any Breach by the Governing Board. E.7. Termination for Cause and Opportunity to Cure. If either party commits a Breach of the Contract, the other party shall, in addition to the rights and remedies set forth in Section E.6, have the right to terminate the Contract; provided, however, the Contract shall not be terminated if the party in Breach reasonably notifies the other party of its intention to cure the Breach, the party in Breach had reasonable grounds to believe that its initial performance would be acceptable, the Breach was not a material failure to perform, and the party in Breach cures in a timely manner. For purposes of this Section, a material failure of performance includes, but is not limited to, failure to remit taxes when due to any Member State or Associate Member State. The party in Breach shall be notified in writing of the other party's intent to terminate, and the notice shall specify the effective date of the termination. Within fifteen (15) business days after giving or receiving notification of intent to terminate, the Contractor shall provide written notice to all Sellers for whom the Contractor is providing services that the Contract will be terminated as of the effective date; provided, however, if the party in Breach notifies the other party of its intent to cure within ten (10) business days after receiving notification of intent to terminate, such notices shall not be sent to Sellers. If the party in Breach has a right to cure in accordance with the requirements of this Section E.7 and makes a satisfactory and timely cure, then the Contract shall not be terminated, but the party in Breach may still be liable for damages caused by the Breach.

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Notice of intent to cure does not preclude termination if the party in Breach does not have a right to cure or does not cure in accordance with the requirements of this Section E.7. If the party in Breach had a right to cure but does not make a satisfactory and timely cure, the party in Breach shall be notified again in writing of the other party’s intent to terminate and the effective date of the termination, and the Contractor shall immediately provide written notice to all Sellers for whom the Contractor is providing services that the Contract will be terminated as of the effective date. The effective date of any termination by the Contractor shall not be less than one hundred eighty (180) days after the Governing Board received notice that its attempt to cure was not satisfactory. E.8. Assignment and Subcontracting. The Contractor shall not assign this Contract or enter into any subcontract, without prior written approval of the Governing Board, for any services that have a material impact on tax calculation, system security, databases, telecommunications, systems development, systems testing, systems maintenance, systems operation, or any other critical functions of the Contractor. If any subcontracts are approved by the Governing Board, they shall contain, at a minimum, sections of this Contract pertaining to "Conflicts of Interest", “Debarment and Suspension”, "Nondiscrimination", and “Affirmative Action” (Sections E.11, E.38, E.40 and E.41). Notwithstanding any use of approved subcontractors, the Contractor shall be the prime contractor, shall be responsible for all work performed, and shall remain responsible for meeting all of its obligations under the Contract. The Contractor shall obtain prior written approval of the Governing Board for any assignment or subcontracting that will be performed outside of the United States, whether or not it has a material impact on the services set forth above. Notwithstanding the foregoing, the Contractor may assign its rights to compensation hereunder to a financial institution or other third party in connection with any transaction to provide financing related to this Contract, and any such assignee may further assign its rights hereunder in connection with such financing. The Contractor shall notify the Governing Board within ten (10) business days of any assignments of the Contractor’s right to compensation. E.9. Merger, Consolidation or Acquisition. If the Contractor is the subject of a merger, consolidation, reorganization or other combination or is the subject of an acquisition, the Contractor’s certification as a CSP shall not automatically transfer to the surviving or acquiring company. The Contractor shall notify the Governing Board as soon as is practicable if a merger, consolidation, reorganization or other combination or acquisition is anticipated. The surviving or acquiring company must obtain certification from the Governing Board and enter into a Contract with the Governing Board as a CSP. The surviving or acquiring company may continue to provide services as a CSP and shall comply with all terms and conditions of this Contract for a period of up to ninety (90) days after the merger, consolidation or acquisition; provided, the surviving or acquiring company must provide written notice to all Sellers receiving services from the Contractor within ten (10) business days of the merger, consolidation, reorganization or acquisition. Unless the Governing Board agrees in writing to a longer time period, no surviving or acquiring company may continue to act as a CSP past the ninety (90) day period without obtaining certification as a CSP and entering into a Contract with the Governing Board. If the surviving or acquiring company does not obtain certification and enter into a

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contract with the Governing Board by the expiration of the time periods referenced above, the Contractor shall immediately notify all Sellers that the surviving or acquiring company is no longer authorized to provide services as a CSP. The Contractor shall ensure that the succeeding entity resulting from any merger, consolidation, reorganization or other combination or acquisition shall assume any liability attributable to the Contractor. E.10. Public Documents. This Contract and all documents incorporated herein constitute public documents which are open to public inspection. E.11. Conflicts of Interest. The Contractor warrants that no part of the compensation or any other resources available to it shall be paid, given or transferred directly or indirectly to any employee or official of the Governing Board, the Streamlined Sales Tax Implementing States, any delegate to the State and Local Advisory Council, or any Member State or any Associate Member State as wages, compensation, or gifts in exchange for acting as an officer, agent, employee, subcontractor, or consultant to the Contractor in connection with any work contemplated or performed related to this Contract. E.12. Independent Contractor. The parties hereto shall not act as employees, partners, joint ventures, agents or associates of one another. It is expressly acknowledged that the parties are independent contracting entities and that nothing in this Contract shall be construed to create an employer/employee relationship or to allow either party to exercise control or direction over the manner or method by which the other transacts its business affairs or provides its services. The employees or agents of one party shall not be deemed or construed to be the employees or agents of the other party for any purpose whatsoever. The Contractor represents that it has secured, or will secure at its own expense, all personnel required to perform the services under this Contract. Such personnel shall not be employees of, or have any individual contractual relationship with the Governing Board, the Member States or the Associate Member States. The Contractor, being an independent contractor and not an employee of the Governing Board, the Member States or the Associate Member States, agrees to carry public liability and other appropriate forms of insurance, including workers compensation insurance on the Contractor’s employees, in an amount satisfactory to the Governing Board, and to provide written proof of such insurance to the Governing Board. The Contract further agrees to pay all applicable taxes incident to this Contract. E.13. Governing Board Liability. The Governing Board shall have no liability except as specifically provided in this Contract. E.14. Force Majeure. Except as provided below, neither party shall be liable for damages or be subject to Contract termination for any delay or default in performing its obligations under this Contract if such delay or default is due to force majeure events beyond either party’s control that could not be avoided by the exercise of due care. For purposes of this section, force majeure events include a war, riot, terrorist acts, fire, any natural disaster such as a flood, tornado, hurricane, earthquake, lightning, or other acts of God. Force majeure does not include: increased cost of materials; any failure or

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inability to pay any sum of money when due and payable; death, job change or departure of an essential person; change in management or ownership of a company or facility; governmental travel advisories; embargos, curtailment of transportation facilities, labor strikes, lockouts, go slow movements or other labor disputes; threats of terrorism or similar acts, as distinguished from actual terrorist acts; accidents; inability to obtain materials, supplies, permits, labor or services; late delivery of any software, equipment, machinery, or materials, except late delivery resulting directly from a force majeure event specifically included as such under this provision; delay in the performance of any contractor or supplier except delay in performance resulting directly from a force majeure event specifically included as such under this provision; normal wear and tear or random flaws in software, equipment, machinery, or materials, or any failure or breakdown of machinery, equipment or software, except failures or breakdowns resulting directly from a force majeure event specifically included as such under this provision; and any event or condition that can be generally expected to occur in a typical year, e.g., snow, rain, or summer heat, that is not a force majeure event as defined above. Notwithstanding the foregoing, this section shall not prohibit the Governing Board from terminating this Contract for failure to remit Seller Taxes to the Member States and Associate Member States; nor shall the Contractor be excused from remitting Seller Taxes to the Member States and Associate Member States within a reasonable time after the force majeure event no longer prevents performance. E.15. Compliance with Laws. The Contractor shall comply with all laws, ordinances, codes, rules, regulations, and licensing requirements that are applicable to the conduct of its business, including those of federal, state, and local agencies having jurisdiction and/or authority. E.16. Governing Law. This Contract shall be governed by and construed in accordance with the laws of the State of Indiana. The Contractor agrees that the Governing Board will only be subject to the exclusive jurisdiction of the courts of the State of Indiana in actions that may arise under this Contract. The Contractor agrees that it will be subject to the jurisdiction of the Member States and the Associate Member States for actions by Member States or Associate Member States to enforce their rights under this Contract. E.17. Communications and Contacts. All instructions, notices, consents, requests, demands, or other communications required or contemplated by this Contract shall be in writing and shall be made by facsimile transmission, electronic data transmission, by overnight courier service, or by first class mail, postage prepaid, addressed to the respective party at the appropriate facsimile number or address as set forth below or to such other party, facsimile number, or address as may be hereafter specified by written notice. To The Governing Board: Scott Peterson, Executive Director Streamlined Sales and Use Tax Governing Board, Inc. 4205 Hillsboro Pike, Suite 305 Nashville, Tennessee 37215

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Telephone Number – (615) 460-9330 Facsimile Number – (615) 460-9315 To The Contractor: All instructions, notices, consents, requests, demands, or other communications shall be considered effectively given as of the day of delivery. The day of delivery for facsimile transmission is the day on which (a) the notice is received mechanically by the facsimile machine at the receiving location and (b) receipt is confirmed by the recipient by e-mail or telephone, whichever is later. Any communication by facsimile transmission shall also be sent by United States mail on the same date of the facsimile transmission. When electronic data transmissions are required for the performance of the Contract, including communications made in connection with testing and sampling under Section E.26, secure and appropriate modes of data transmission, along with appropriate encryption mechanisms, shall be used. Electronic data transmissions shall be made in the form and manner appropriate for their intended purpose, and shall be directed to the person or body responsible for receiving such transmissions as contemplated under this Contract. E.18. Communications with Member States and Associate Member States. All instructions, notices, consents, requests, demands or other communications with the Member States and Associate Member States are subject to the same conditions set forth in Section E.17. All such communications to Member States and Associate Member States shall be directed to the individuals listed as the contact person for each Member State or Associate Member State in the Governing Board’s Web site. Within ten (10) business days of the Effective Date of this Contract, the Contractor shall provide to the Executive Director of the Governing Board the name, address, telephone and facsimile number of person(s) it has designated to receive communications from Member States and Associate Member States. E.19. Mutual Cooperation. The parties acknowledge that the success of this Contract depends upon mutual cooperation between the Contractor, the Governing Board, the Member States and the Associate Member States. Therefore, to enable the efficient and timely performance of the Contract, the Governing Board and the Contractor agree to: cooperate with each other by providing timely approvals, acceptances, consents and information; participate in meetings upon appropriate notice; and provide each other with (i) timely notice of changes in policies and procedures; (ii) timely clarification of policies and procedures upon reasonable request; and (iii) timely provision of any other information or resources that may affect each other’s performance under the Contract. The Governing Board further agrees to assist the Member States and Associate Member States in acting in a like manner when dealing with the Contractor as it performs its obligations under this Contract. E.20. Renegotiation. The parties agree to renegotiate in good faith to make such adjustments and modifications to the Contract as may be reasonably necessary to reach an equitable result, under the following circumstances:

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If changes in Federal law materially affect any provision of this Contract or the obligations of the parties under this Contract, the Contract shall be renegotiated to address matters affected by such Federal legislation. If the Governing Board adopts certification standards or imposes requirements that materially affect the Contractor’s performance of its obligations under the Contract, the Contract shall be renegotiated to address matters affected by such standards or requirements. Until the renegotiation process has concluded, the parties shall perform the Contract in accordance with its then existing terms. E.21. Contracts with Non-Member States. If the Contractor enters into a contract with a state or government authority that is not a Member State or Associate Member State (“Non-Member State Contract”), to provide sales tax collection and remittance services for that state or government authority, the Contractor shall provide a copy of that contract to the Governing Board within ten (10) days of the execution date of that contract. If the Governing Board, in its sole discretion, determines that the terms of the Non-Member State Contract are more favorable than the terms provided to the Governing Board under this Contract, the Contractor shall, at the election of the Governing Board, modify this Contract to provide services on the same terms as the Non-Member State Contract. E.22. Third Party Beneficiaries. The parties agree that the Member States and Associate Member States are the only intended third party beneficiaries of this Contract. Member States and Associate Member States, whether acting collectively or individually, may avail themselves of any and all remedies at law and equity to enforce their rights herein. E.23. Systems Location. The Contractor shall maintain all computer systems related to the performance of this Contract in the United States. E.24. Records. The Contractor shall maintain documentation for all Seller Taxes under this Contract on behalf of the Member States and Associate Member States. The books, records, systems documentation and logs, and other documents of the Contractor (“Records”), insofar as they relate to work performed or money received under this Contract, shall be maintained in the United States for a period of time not less than the longest statute of limitation period for any Member State or Associate Member State for which the Contractor is providing services. The Records shall be subject to audit at any reasonable time and upon reasonable notice by the Governing Board, or its duly appointed representatives and representatives of Member States and Associate Member States. The Contractor shall maintain such Records electronically. The financial statements shall be prepared in accordance with generally accepted accounting principles. Notwithstanding the foregoing, the Contractor shall not be required to disclose or provide access to its internal cost information that constitutes confidential trade secret information of the Contractor.

To the extent permitted by the laws of the Member States and Associate Member States, the Contractor shall also provide access to the Governing Board, the Member States, and the Associate Member States to all records of the Sellers with whom it

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contracts and serves as a CSP, insofar as they relate to the collection of sales and use taxes and services that the Contractor performs or is obligated to perform under this Contract. In its contracts with Sellers, the Contractor shall include a provision requiring Sellers to provide such records electronically upon request by the Governing Board, the Member States, or the Associate Member States.

The Contractor shall also provide timely responses to requests from Dun & Bradstreet, Inc. (D & B) and other industry ratings companies that provide subscribers with ratings directories, credit reports, financial ratios, and other financial information. E.25. Tax Compliance and Re-Certification Audits. The Contractor shall comply with all requirements for periodic tax compliance and re-certification audits as established by the Member States, the Associate Member States, or Governing Board pursuant to Rules and Procedures 501.4. If a tax compliance or re-certification audit shows that the Contractor has not remitted sales or use taxes to any Member State or Associate Member State that should have been remitted, such taxes shall be considered delinquent and the Contractor shall be held liable in accordance with Section E.1 (Liability for Unpaid Taxes), except to the extent that the Contractor is relieved from liability in accordance with Sections E.2 (Relief from Liability: Seller’s Failure to Remit), E.3 (Relief from Liability: Erroneous Data) or E.4 (Relief from Liability: Certification Compliance). E.26. Testing and Sampling. The Contractor shall authorize periodic and random testing and sampling of the Automated System, as well as the Contractor’s other processes and systems used in performing its obligations under this Contract. The Contractor shall maintain procedures and mechanisms to provide persons authorized by the Governing Board, Member States and Associate Member States with timely and reasonable access (either onsite or remote) to any documentation, system, database or system component needed to perform such tests or sampling. The Governing Board shall create a Testing Central (TC) program for the purpose of monitoring and communicating information regarding system changes and for communicating with the Contractor regarding changes to CSP requirements. The Contractor shall comply with all requirements and procedures established by TC for the performance of TC’s responsibilities and functions. The parties understand that system performance and/or availability may be affected by testing and sampling activities, and the Governing Board, Member States and Associate Member States shall cooperate with the Contractor in establishing procedures designed to minimize those effects. The Contractor releases the Governing Board and persons authorized by the Governing Board, Member States and Associate Member States from any and all liability for damages that may arise from system availability restrictions and other disruptions caused by such activities, unless such damages are the result of gross negligence or intentional misconduct. If the Contractor establishes that testing and sampling activities are directly responsible for the Contractor’s failure to perform its obligations under this Contract, the Contractor shall not be deemed in Breach, so long as the Contractor undertakes timely and appropriate measures to mitigate the adverse effects caused by the failure.

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The Governing Board, Member States and Associate Member States shall cooperate in protecting any proprietary, trade secret, or other confidential information accessed during testing and sampling activities, including the execution of reasonable confidentiality agreements submitted by the Contractor and approved by the Executive Director of the Governing Board. In cases where the Governing Board, Member States, or Associate Member States require access to the Contractor’s computer source code, the Contractor shall have the right to limit the inspection of the source code to the Contractor’s own location or another secure location selected by the Contractor. E.27. Trust Account. The Contractor shall create and administer a sales and use tax trust bank account to process all Seller Taxes due and owing to the Member States and Associate Member States. The trust account shall be a separate bank account established at a banking institution approved by the Governing Board within ten (10) business days after the Effective Date of this Contract. The trust account shall be established as a zero balance account that requires the deposit of all Seller Taxes processed by the Contractor and the segregation of all Seller Taxes from the Contractor’s own funds. The corresponding general ledger account on the Contractor’s accounting system shall provide a clear audit trail of all deposits of Seller Taxes, remittances of taxes to the Member States and Associate Member States, transfers of Contractor compensation from the trust account to the Contractor’s general business accounts, and all other account transactions. The trust account shall be secured through FDIC and/or other appropriate bank collateral agreements. The account shall also be administered with generally accepted practices for the segregation of duties among account administrators, and shall have in place the necessary electronic controls to prevent unauthorized access to and transfers from the account. All costs incurred in the creation and maintenance of the bank trust account shall be borne by the Contractor, and any interest earned on deposited funds may be retained by the Contractor. E.28. Performance Bond and Security. In order to assure performance of its obligations under this Contract, including but not limited to liability for taxes under sections E.1 and E.25 of this Contract, the Contractor shall cause sufficient security to be deposited with the Governing Board or with a surety or financial institution approved by the Governing Board within thirty (30) days after the Effective Date of this Contract. Security shall name the Governing Board as the beneficiary or obligee who may draw on the security or make a claim on behalf of the Member States and Associate Member States. Security shall be in the manner and form prescribed by the Governing Board. Adequate security shall be in the form of: an irrevocable letter of credit issued by a financial institution acceptable to the Governing Board; certificates of deposit issued by financial institutions acceptable to the Governing Board (with a maximum of $100,000 each); surety bonds issued by an insurance and/or surety company acceptable to the Governing Board; or direct obligations of the United States of America (e.g. United States Treasury Bills, Notes and Bonds. (a) The amount of required security coverage shall be determined as follows: (1) The initial security shall be five hundred thousand dollars ($500,000).

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(2) During the first twelve (12) months after the Effective Date of the Contract, the Contractor shall adjust the security, in quarterly intervals, to an amount not less than the total Seller Taxes remitted by the Contractor during the previous three months to all Member States and Associate Member States except the State of North Carolina. In other words, such adjustments shall be made after the Contract has been in effect for three, six, nine, and twelve months. (3) Beginning one year after the Effective Date of the Contract, the Contractor shall adjust the security to equal three times the average monthly Seller Taxes remitted by the Contractor during the previous twelve (12) months to all Member States and Associate Member States except the State of North Carolina. (4) Beginning one year after the Effective Date of the Contract, the Contractor may at any time request the Governing Board to decrease the amount of security, but in no event shall such decrease result in total security less than three times the average monthly liability to all Member States and Associate Member States, except the State of North Carolina, for the twelve (12) months preceding the request. (5) Beginning one year after the Effective Date of the Contact, the Governing Board may at any time require the Contractor to raise the amount of security if the amount deposited becomes insufficient compared to the amount of Seller Taxes remitted by the Contractor. For purposes of this subsection, the security is insufficient if the amount deposited is less than eighty percent (80%) of the total Seller Taxes remitted by the Contractor to all Member States and Associate Member States, except the State of North Carolina, during any three month period prior to the Governing Board’s determination. In such a case, the Contractor shall adjust the security to an amount not less than the total Seller Taxes remitted to all Member States and Associate Member States, except the State of North Carolina, during the three month period used by the Governing Board to make its determination. (6) The required security shall not be adjusted if the amount calculated under subsection (2), (3), (4), or (5) varies from the amount of the existing security by less than ten percent (10%). (7) Notwithstanding the provisions of subsections (2), (3), (4), (5), or (6), in no case shall the security be adjusted to an amount less than five hundred thousand dollars ($500,000). (b) The Contractor shall provide the Governing Board with copies of all financial information, financial statements, and any other materials supplied to the issuing surety or financial institution in connection with the Contractor’s application for initial coverage and all requests for adjustments in coverage thereafter. The Contractor shall notify the Governing Board of any material changes that may detrimentally affect its financial soundness throughout the duration of the Contract. (c) In the event that the amount or terms of security change for any reason without the prior written approval of the Governing Board, the Contractor or the issuing surety or financial institution providing the security shall immediately send written notification of the change to the Governing Board. Notification of any change shall not relieve the Contractor from its obligations under this Section.

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(d) The Governing Board may terminate this Contract, pursuant to Section E.7 (Termination for Cause and Opportunity to Cure), if the Contractor fails to furnish or maintain security in accordance with the terms hereof or otherwise fails to perform its obligations under this section. At the termination of this Contract for any reason, the security then in place shall remain in effect for a period of six (6) additional months and for an additional period of time, as reasonably determined by the Governing Board, sufficient to allow the Governing Board, Member States and Associate Member States to obtain audit records of the Contractor and evaluate the performance of the Contractor’s obligations under this Contract. E.29. Proprietary Rights. Documentation, policies, records, or any other information that the Contractor would consider as trade secrets or other proprietary information that it does not wish to be disclosed to persons other than the Governing Board and its authorized representatives, Member States and Associate Member States shall be identified conspicuously on each page as “CONFIDENTIAL”. The Governing Board, Member States and Associate Member States shall keep such information confidential to the extent permitted by the law of any state and the Governing Board’s Rules and Procedures. E.30. Public Funding Notice. All notices, informational pamphlets, press releases, research reports, signs, and similar public notices prepared, released, or authorized by the Contractor relating to this Contract shall include the statement, “This project is funded under an agreement with the Streamlined Sales Tax Governing Board, Inc.” Any such notices by the Contractor shall be submitted to the Executive Director of the Governing Board in advance of their release and are subject to Governing Board approval. The Executive Director shall either approve the notice within ten (10) business days of receipt or notify the Contractor that the Governing Board will review the notice at its next regularly scheduled meeting. E.31. Prohibited Advertising. In any advertising, marketing, or other communication, whether public or private, for services provided to Sellers, the Contractor may represent, in a form and manner approved by the Governing Board, that it has been designated as a Certified Service Provider. The Contractor shall not, in any such advertising, marketing, or communication, represent or imply that its services provided to Sellers are favored or preferred by the Governing Board, Member State or Associate Member State over services provided by any other person designated as a CSP by the Governing Board. In no case shall the Contactor state or imply in any advertising, marketing, or communication that any services it provides, other than those specified in section B.2 of this Contract, have been certified by the Governing Board, nor shall it misrepresent its status as a CSP in any such advertising, marketing or communication. If at any time the Governing Board adopts or registers a trademark for use in connection with this Contract or the Streamlined Sales Tax Project, the Contractor shall use the trademark only in a manner authorized by the Governing Board and in accordance with policies adopted by the Governing Board for trademark use. If the Executive Committee of the Governing Board determines that any advertising, marketing, or communication made by the Contractor violates the provisions of this Section, or that the Contractor has made unauthorized use of a Governing Board trademark, the Executive Director of the Governing Board shall notify the Contractor in

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writing. Upon receipt of such notice, the Contractor shall promptly cancel or withdraw any such advertising, marketing or communication, discontinue any unauthorized use of the trademark, and shall take other corrective action required by the Executive Committee of the Governing Board. E.32. Confidentiality of Records. Strict standards of confidentiality of records shall be maintained in accordance with the law of each Member State and Associate Member State and the Rules and Procedures of the Governing Board. All material and information regarding the transactions, property, business, or tax liability of any Seller or consumer, regardless of form, medium or method of communication, provided to the Contractor by the Governing Board, a Member State or an Associate Member State or acquired by the Contractor in its performance of this Contract, shall be regarded as confidential information in accordance with the provisions of applicable law and ethical standards and shall not be disclosed. The Contractor shall take all necessary steps to safeguard the confidentiality of such material or information in conformance with applicable law and ethical standards. The obligations set forth in this section shall survive the termination of this Contract. E.33. Contractor’s Representations. In entering into this Contract, the Governing Board has relied upon the information submitted and representations made by the Contractor in connection with its proposal, and the Governing Board has assumed them to be complete and accurate. If any submitted information or representations prove to be materially incomplete or inaccurate, the Contractor will be in Breach and the Governing Board may pursue any remedy for Breach as provided in this Contract. E.34. Warranty. By Signing this Contract, the Contractor warrants that there have been no material changes in the Contractor’s systems or operations between the time the Certification Committee appointed by the Governing Board completed its review of the Contractor’s proposal in response to the RFP and the Effective Date of this Contract. E.35. Intellectual Property. Each party will retain all rights in any software, ideas, concepts, know-how, development tools, techniques or any other proprietary material or information that it owned or developed prior to the date of this Contract, or acquired or developed after the date of this Contract without reference to or use of the intellectual property of the other party. All software that is licensed by a party from a third party vendor will be and remain the property of such vendor. Notwithstanding anything to the contrary in this Contract, the Contractor (i) will retain all right, title and interest in and to all know-how, intellectual property, methodologies, processes, technologies, algorithms, software or development tools used in performing the Contractor services which are based on trade secrets or proprietary information of the Contractor, are developed or created by or on behalf of Contractor without reference to or use of the intellectual property of the Governing Board, Member States or Associate Member States or are otherwise owned or licensed by Contractor (collectively, “Tools”), (ii) subject to the confidentiality obligations set forth in this Contract, will obtain all right, title and interest in and to and be free to use the ideas, concepts, methodologies, processes and know-how which the Contractor has developed or created in the course of performing the Contractor’s services, whether in tangible or intangible form, all of which constitute substantial rights on the part of Contractor in the technology developed as a result of the Contractor services performed under this

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Contract, and (iii) will retain ownership of any Contractor-owned software or Tools that are used in producing the developed software and become embedded in the therein. No licenses will be deemed to have been granted by either party to any of its patents, trade secrets, trademarks or copyrights, except as otherwise expressly provided in this Contract. All know-how, intellectual property, methodologies, processes, technologies, algorithms, software or development tools, ideas, concepts, inventions (whether or not patentable), discoveries, improvements, reports, programs, specifications, designs, documentation, and all other information or output prepared, authored, developed by Contractor or its employees, agents and representatives, either alone or in collaboration with third parties, in connection with the performance of its services hereunder (the “Intellectual Property”) will become and remain Contractor’s exclusive property, and title thereto shall at all times be in Contractor. The Governing Board agrees that it will not seek patent, copyright, trademark, registered design or other protection for any rights in the Contractor’s Intellectual Property. The Governing Board agrees that it shall, at Contractor’s expense, do all things and execute all documents as Contractor may reasonably require to vest in Contractor or its nominees any protection, the Contractor deems appropriate, for the Contractor’s Intellectual Property. Nothing herein shall preclude the Governing Board, Member States, and Associate Member States from obtaining any information or data embedded in the Automated System or other software, system, or process that relates to the Contractor’s performance of its obligations under this Contract. The information or data must be provided in a format that does not require the use of propriety software other than that of the Contractor to which the Governing Board, Member States, and Associate Member States have access under the terms of this Contract. In cases where the Governing Board, Member States, or Associate Member States require access to the Contractor's computer source code, the Contractor shall have the right to limit the inspection of the source code to the Contractor's own location or another secure location selected by the Contractor. E.36. Patents, Trademarks, and Copyrights. The Contractor agrees to indemnify and hold harmless the Governing Board, the Member States, the Associate Member States, and each of their officers, directors, agents, representatives, and employees from and against any and all claims, liabilities, losses, and suits which may be brought against them for infringement of any laws regarding patents, trademarks, and copyrights which may arise from the Contractor’s performance of this Contract. In any such action, the Contractor shall satisfy and indemnify for the amount of any judgment for infringement, and shall be liable for the court costs and reasonable fees of attorneys, including costs and fees in the event that legal proceedings are initiated to enforce the terms of this Contract or otherwise to enforce the obligations of the Contractor. The Governing Board shall give the Contractor prompt written notice of any such claim or suit, sole right and opportunity to conduct the defense or settlement thereof, and reasonable assistance (at Contractor’s expense) in the defense or settlement or such claim or suit. E.37. Indemnity and Hold Harmless. The Contractor agrees to indemnify and hold harmless the Governing Board, the Member States, the Associate Member States, and each of their officers, directors, agents, representatives, and employees from and against any and all claims, liabilities, losses, and suits which may arise, accrue, or result from any person, firm, corporation, or other entity that may be injured or damaged as a result of acts, omissions, or negligence on the part of the Contractor, its employees, or

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any person acting for or on its or their behalf relating to this Contract. The Contractor further agrees it shall be liable for the court costs and reasonable fees of attorneys in the event that legal proceedings are initiated to enforce the terms of this Contract or otherwise to enforce the obligations of the Contractor. The Governing Board shall give the Contractor prompt written notice of any such claim or suit that it receives, sole right and obligation to conduct the defense and settlement thereof, and reasonable assistance (at Contractor’s expense) to enable Contractor to do so. E.38. Debarment and Suspension. The Contractor warrants and certifies, to the best of its knowledge and belief, that it and its principals: (a) are not presently debarred, suspended, proposed for debarment, declared ineligible, or voluntarily excluded from covered transactions by any federal or state department or agency; (b) have not within the preceding three years been convicted of, or had a civil judgment rendered against them from commission of fraud, or a criminal offense in connection with obtaining or attempting to obtain, or performing a public (federal, state, or local) transaction or grant under a public transaction; violation of federal or state antitrust statutes or commission of embezzlement, theft, forgery, bribery, falsification, or destruction of records, making false statements, or receiving stolen property; (c) are not presently indicted for or otherwise criminally or civilly charged by a government entity (federal, state, or local) with commission of any of the offenses detailed in subsection (b) of this Section; (d) have not within the preceding three years had one or more public transactions (federal, state, or local) terminated for cause or default; and (e) are not delinquent or in arrears on any federal, state, or local tax obligations. In the event that, after the signing of this Contract, one or more of the aforementioned representations ceases to be accurate, the Contractor shall immediately notify the Governing Board of the change. Any such change shall be deemed a Breach of this Contract. E.39. Interpretation of SSUTA. The Contractor may bring before the Governing Board questions of interpretation regarding its obligations, as provided in the SSUTA, Sections 902 and 903. Responses to such requests shall be made as provided in the SSUTA and in accordance with the Rules and Procedures of the Governing Board. E.40. Nondiscrimination. The Contractor hereby agrees, warrants, and assures that no person shall be excluded from participation in, be denied benefits of, or be otherwise subjected to discrimination in the performance of this Contract or in the employment practices of the Contractor on the grounds of disability, age, race, color, religion, sex, national origin, marital status, sexual orientation, or any other classification protected by Federal law or the laws of any Member State or Associate Member State. The Contractor shall, upon request, show proof of such nondiscrimination and shall post in

28

conspicuous places, available to all employees and applicants, notices of nondiscrimination. E.41. Affirmative Action. The Contractor shall take affirmative action in complying with all federal and state requirements concerning fair employment and employment of people with disabilities, and concerning the treatment of employees without regard to discrimination by reason of age, race, color, religion, sex, marital status, national origin, sexual orientation or disability. E.42. No Collusion. Under penalty of perjury, the Contractor warrants that its offer to contract with the Governing Board to become certified as a Certified Service Provider and provide services as required in this Contract has not been arrived at collusively or otherwise in violation of either federal antitrust laws or the antitrust laws of any Member State or Associate Member State. E.43. Confidentiality of Proposals. The Contractor warrants and certifies that it has not discussed or otherwise revealed the contents of its proposal to any source outside the Certification Committee or the Governing Board except as otherwise authorized in writing by either the Certification Committee or the Governing Board prior to the date of execution of this Contract. E.44. Modification and Amendment. This Contract may be modified only by a written amendment executed by all parties hereto and approved by the appropriate Governing Board officials in accordance with the SSUTA and applicable bylaws of the Governing Board which shall be attached hereto. E.45. Strict Performance. Failure by any party to this Contract to insist in any one or more cases upon the strict performance of any of the terms, covenants, conditions, or provisions of this Contract shall not be construed as a waiver or relinquishment of any such term, covenant, condition, or provision. No term or condition of this Contract shall be held to be waived, modified, or deleted except by a written amendment signed by the parties hereto.

E.46. Completeness. This Contract is complete and contains the entire understanding between the parties relating to the subject matter contained herein, including all the terms and conditions of the parties’ agreement. This Contract supersedes any and all prior understandings, representations, negotiations, and agreements between the parties relating hereto, whether written or oral. The parties agree that if there are inconsistencies between the terms of this Contract and the representations or statements of any party or person, whether authorized or not, the terms of this Contract shall control.

29

E.47. Severability. If any terms and conditions of this Contract are held to be invalid or unenforceable as a matter of law, the other terms and conditions hereof shall not be affected thereby and shall remain in full force and effect. To this end, the terms and conditions of this Contract are declared severable.

E.48. Delegation. To aid in the efficient administration of this Contract, the Governing Board may delegate its rights and obligations to committees, officers, and other persons who are authorized to act on behalf of the Governing Board in accordance with its Rules and Procedures. Delegation shall not relieve the Governing Board of any contractual obligations to the Contractor.

E.49. Headings. Section headings of this Contract are for reference purposes only and shall not be construed as part of this Contract. E.50. Exhibits. Attached to this Contract are the following Exhibits: Exhibit A: Streamlined Sales and Use Tax Agreement adopted November 12, 2002, as subsequently amended (SSUTA) Exhibit B: Request for Proposal originally issued by the Streamlined Sales Tax Conforming States’ Committee on November 1, 2004 and re-issued September 20, 2005 (RFP) Exhibit C: Minimum Standards for Certification E.51. Ability to Execute Contract. Each of the parties to this Contract certifies that the person signing the Contract on its behalf is authorized by applicable law to execute the Contract and bind the party to the Contract’s terms and conditions. E.52. Required Approvals. The Governing Board is not bound by this Contract until it is approved by the Governing Board in accordance with the SSUTA and applicable bylaws of the Governing Board.

IN WITNESS WHEREOF:

____________:

By ____________________ Date

Streamlined Sales Tax Governing Board, Inc.:

By Senator Dwight Cook, President Date

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Article VIII State Entry and Withdrawal

Rule 806: Agreement Administration

Rule 806.1 Administration of Governing Board Rule 806.2 Notice Requirements Rule 806.3 Administration of Compliance Audit Process

Rule 806.3.1 Authority

A. The Governing Board has the authority to execute any policies it deems to be in the best interest of the organization within the parameters of the Streamlined Sales and Use Tax Agreement, bylaws, and federal, state and local law.

B. The Streamlined Sales Tax Governing Board or its designee

has the authority to perform CSP contract compliance audits and coordinate tax compliance audits for member states as authorized by the Governing Board; and to develop and use standardized operating audit procedures and policies for performing both contract compliance and tax compliance audits.

C. The Streamlined Sales Tax Governing Board designates the

Audit Core Team to perform contract compliance audits for member states and to coordinate the tax compliance audits of Model 1 sellers as authorized by the Governing Board.

Rule 806.3.2 Definitions

A. Certified Service Provider (CSP) An agent certified under the Agreement to perform all the seller’s sales and use tax functions other than the seller’s obligation to remit tax on its own purchases. B. Certified Automated System (CAS) Software certified under the Agreement to calculate the tax imposed by each jurisdiction on a transaction, determine the

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amount of tax to remit to the appropriate state, and maintain a record of the transaction. C. Audit Committee The Audit Committee was created by the Governing Board to advise the Governing Board pertaining to procedures on the audit of CSPs, CAS systems, and Model 1, 2 and 3 sellers. The Audit Committee will develop procedures to be used in performing compliance audits for member states. D. Audit Core Team The Audit Core Team is a group of designated representatives from full member states who are responsible for coordinating compliance audits, performing contract compliance audits and compiling feedback reports for the Governing Board. E. Compliance Audit Process. The Compliance Audit Process includes the contract compliance audit process and the tax compliance audit process. F. Contract Compliance Audit Process The Contract Compliance Audit Process determines if the CSP performed according to the provisions of the contract with the member states. G. Tax Compliance Audit Process The Tax Compliance Audit Process determines if transactions were properly taxed, tax reported and remitted to the correct jurisdiction when due. H. Member States Member states are states that are full or associate member states of the Streamlined Sales Tax Governing Board. I. Simplified Electronic Return (SER) J. Audit Site

K. Testing Central As defined in Article V.

Rule 806.3.3 Audit Committee A. Membership Members of the Audit Committee are representatives of participating states and local government.

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B. Committee Meetings – (open & closed meetings) Rule 806.3.4 Audit Core Team A. Membership The Audit Core Team is made up of representatives from full member states. B. Reporting relationship The Audit Core Team will report to the Streamlined Sales Tax Governing Board Executive Director or its designee for audit assignments, guidance and support. C. Team Meetings – (closed meetings) D. Responsibilities:

1. The Audit Core Team is responsible for performing contract compliance audits and coordinating tax compliance audits with member states.

2. The Audit Core Team will: a) Determine the CSP’s level of compliance with the terms

of the CSP contract. (Questionnaires and specific tests will be used to assess the CSP’s contract compliance.)

b) Verify that compensation was calculated properly for all volunteer sellers.

c) Verify that appropriate procedures for mapping exist, are in conformance with the mapping requirements, and are followed in the initial mapping setup, as well as during updates and corrections to mapping.

d) Verify that the appropriate entity use exemption data elements are captured by the CSP system.

e) Verify that all tax collected was remitted timely to the appropriate tax authority.

f) Verify that sales were accurately reported by the CSP/Seller on simplified electronic returns (SERs).

g) Acquire a list of sellers represented by each CSP and provide this information to the Streamlined Sales Tax Governing Board member states;

h) Coordinate with state auditors a download of all sales processed by the CSP for each seller, which will be available through access to a FTP site maintained by the SSTGB, Inc. to receive electronic records.

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i) Create a uniform audit plan with a timeline to establish the projected dates that various audit steps should be completed;

j) Compile the feedback reports from the member states, summarize the findings and report to the Executive Director of the Streamlined Sales Tax Governing Board. The summaries must comply with confidentiality restrictions that apply to the SST Governing Board regarding disclosure.

Rule 806.3.5 Compliance Audit of a CSP

A. The Compliance Audit of a CSP and its Model 1 sellers will include a contract compliance audit of the CSP and tax compliance audits of Model 1 sellers’ transactions processed through the CSP’s system. B. The contract compliance audit of the CSP will be performed by the Audit Core Team. The tax compliance audits of the Model 1 sellers will be performed by member states under the coordination of the Audit Core Team.

Rule 806.3.5.1 Communication with Model 1 sellers during Audit A. There should be no direct communication with Model 1 sellers by member states, except in response to questions from Model 1 sellers, in case of suspected fraud or to obtain information that the CSP cannot provide.

Rule 806.3.5.2 Timeline for Compliance Audit Process The timeline for conducting the compliance audit will vary from year to year. The Audit Core Team will establish a timeline for each audit. The Audit Core Team will have 30 days after receiving each member state’s preliminary audit report to compile a report on the findings of the contract compliance audit and the member states’ tax compliance audits and submit the report to the CSP. The CSP will have 30 days to review and comment on the preliminary findings of the compliance audit. Comments will be sent to the Audit Core Team and member states.

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The Audit Core Team and member states will have 10 days to amend their findings if necessary before final report is sent to the Executive Director of the Streamlined Sales Tax Governing Board. The Audit Core Team may grant extensions as deemed appropriate to the above timelines. Rule 806.3.5.3 Report on Audit Findings A. The Audit Core Team will provide each member state with its findings of the contract compliance audit. B. Member states will incorporate the findings of the contract compliance audit into their state’s audit report for the tax compliance audit so the CSP receives only one audit report per state. (For example, if the Audit Core Team finds that a CSP has withheld more compensation than they should, the assessment for that additional tax will be combined with the assessments, if any, for underreporting by the CSP’s Model 1 sellers.) C. The report on the audit findings that goes to the Executive Director will contain general information on the errors found and will not contain specific taxpayer information to ensure the confidentiality of taxpayer information.

Rule 806.3.5.4 Contract Compliance Audit of CSP

Rule 806.3.5.4.1 Transaction Documentation The following documentation and records are required to be provided via an electronic download through an FTP site by Certified Service Providers to the Audit Core Team and SST member and associate member states. (This is required by Article V - Appendix F after 7/1/2008) A. The CSP’s response to the Audit Core Team Questionnaire and a listing of each member state’s Model 1 sellers and the date each seller began processing transactions through the CSP’s system will be provided by electronic means to the Audit Core Team.

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B. Sales Transaction Information

1. Electronic downloads of sales data may be provided at either the invoice level or the line item level of an invoice. 2. For invoices that include taxable and exempt components, each item or bundled transaction must be clearly identified so tax calculation can be verified. 3. Sales transaction data must include a. Order and billing dates for each

seller’s customer. b. Sales records with a unique transaction number assigned to each sale. c. Billing address and shipping location for each transaction for each seller’s customer according to the appropriate sourcing rules. d. Sales price, taxable amount and tax by jurisdiction for each transaction. e. For any discounts applied, the taxable base should be easily discernable. f. An audit trail to substantiate credits for transactions processed through the CSP’s system.

C. Exemption Information

1. Exemption information on purchasers as required in the Simplified Exemption Administration Paper. 2. Exemption Information Report as stipulated in Section 501.6.B.2.b of Article V. 3. Detailed information providing a distinction between exempt transactions by product or entity/use based exemptions. 4. Exempted sales transactions must include the customer’s name in addition to all other information required for each sales transaction. 5. Uniform exemption certificates and/or data, either in electronic or paper format, must be maintained by the CSP.

D. Tax Collection and Remittance Information

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1. CSPs must provide documentation to verify that all tax collected was appropriately remitted, and the tax return information is accurate. 2. Tax reversals/credits must identify every tax jurisdiction credited.

Rule 806.3.5.5 Tax Compliance Audit of Transactions Processed by the CSP

A. Each member state’s designated auditor(s) will handle its state’s portion of the audit and is responsible to ensure conformance to the audit plan and timeline, according to each state’s audit policies and procedures.

B. The Audit Core Team will provide the CSP with a list of the member states’ auditors who will be involved in the compliance audit process.

C. Each CSP will provide a list of all sellers and the date each seller began processing transactions using its service to the Audit Core Team for distribution to the member states. Each member state will decide which Model I sellers’ transactions to include in their tax compliance audit. The state auditors will have access to a FTP site maintained by the SSTGB, Inc. to receive electronic records. Each member state has the option to comprehensively review the electronic records or choose sampling methodology to perform the review of the transactions processed.

D. Member state auditors would be responsible for reviewing the seller’s transactions to determine if they were taxed correctly. If errors exist the auditors must determine if the errors were caused by any of the following reasons including but not limited to:

1.) Deviation from the state’s rates and boundaries tables; 2.) Noncompliance with the state’s taxability matrix; 3.) Non-compliance with state approved expanded matrix; 4.) Changes posted through Testing Central were not implemented in a timely manner (10 days); (This will be verified through the CORE Team); 5.) Seller overrides of the CSP system;

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6.) Exemption information and/or certificates did not contain all of the required data elements; 7.) Calculations that were tested and approved during the certification process; 8.) Errors in computing tax based on erroneous information from the states.

E. Prior to the issuance of an audit adjustment, the CSP will be given an opportunity to review the audit results with the auditor(s) from each state wherein a tax liability exists in accordance with its laws, rules and regulations.

F. Where audit findings indicate there is an outstanding tax liability owed by the CSP, any resulting deficiencies or demand for payment of additional taxes under the terms of the contract will be generated by each member state. Accordingly, the laws of each state regarding the appeal process and statute of limitations would apply to the audit adjustments.

Rule 806.3.6 Compliance Audit of a Model 2 Seller (Reserved) Rule 806.3.7 Compliance Audit of Model 3 Seller (Reserved)

Requirements for Audit Work File Each state shall receive a file of all taxable and exempt records where the ship to state included in Field 12 is their own state. Fields 1 through 14 should be provided for all records. If an exemption is claimed, fields 15 through 27 should be completed using information from the Certificate of Exemption. All fields are required if the data is available. The file will be in a comma delimited (.csv) format. The file name will be constructed as follows:

• First and second digits being the CSP/CAS code: AV = Avalara, TX = Taxware CSP, TS = Taxware CAS, EX = Exactor

• Third and fourth digits being the two digit state abbreviation.

• Fifth and sixth digit being the quarter the information is for: 01, 02, 03 or

04.

• Seventh through tenth digits are the year the information is for. Example of file from Exactor for Arkansas for the third quarter of 2007: EXAR032007.csv. The files will be placed in the CSP/CAS FTP state folders. Once the files are transferred, the CSP/CAS will contact Testing Central. Testing Central will move the files into the corresponding state audit FTP folders and notify the states the files are ready for review. The file will contain the following information.

Field

Field Name

Description

Format

Length

1 Retailer SSTID Alpha/Numeric 9 2 Retailer Name Alpha 40 3 Record Number Transaction ID /

Identifying Number Alpha/Numeric 10

4 Date of Transaction Date the tax was calculated

CCYYMMDD 8

5 Total Amount of Purchase Includes Exempt and Taxable Amounts

Numeric 15 including 2 decimals

6 Total Taxable Amount Taxable Amount only Numeric 15 including 2 decimals

7 Total Tax Amount Sum of FIPS tax amounts 1 – 20


8 Description of Item Sold Provide SKU from State Alpha 40

Formatted: Bullets and Numbering




Deleted: for its state only

Deleted:

Deleted: ¶Each state shall receive those records where there state is included in Fields 12 (Ship to State), 15 (State Where Exemption is Claimed), or 21 (Purchaser State).¶

Exempt Sales Product matrix if applicable. Otherwise provide description from seller

9 Ship to Address ** Street name and number

Alpha/Numeric 40

10 Ship to Suite ** Suite, P.O. Box, Apt, Lot Alpha/Numeric 40 11 Ship to City ** Name of city Alpha 40 12 Ship to State ** 2-digit abbreviation Alpha 2 13 Ship to Zip Code ** 9 character zip code Alpha/Numeric 9 14 Ship to Country ** 3 character country

abbreviation Alpha 3

15 State Where Exemption is Claimed

2- letter postal abbreviation

Alpha 2

16 Name of Purchaser Alpha 40 17 Type of Purchaser ID

Number Provide Enter ID type provided: Tax ID, FEIN, DLN or FDN

Alpha 6

18 Purchaser ID Number Enter number that corresponds to ID type selected in field 17

Alpha/Numeric 20

19 Purchaser Mailing Address Alpha 40 20 Purchaser City Alpha 40 21 Purchaser State 2-digit abbreviation Alpha 2

22 Purchaser Zip Code 9 character zip code Alpha/Numeric 9 23 Purchaser Country 3 character country


24 Purchaser Business Type Number

2-digit number Numeric 2

25 Purchaser Business Type Description

Must be completed if “20” is selected in field 24

Alpha 40

26 Purchaser Exemption Reason Code

Letter selected on exemption form

Alpha 1

27 Purchaser Exemption Reason Description

Provided on exemption form following code and standard description

Alpha 40

** Field will contain address information as to there the item was shipped. If purchased over-the-counter the information will be the address where the item was sold.

STREAMLINED SALES TAX AUDIT COMMITTEE

Site Requirements for Audit Worksite Training Material

07/09/2007

Table of Contents Source.....................................................................................................................3 Transaction Data Elements ....................................................................................3 Business Codes .....................................................Error! Bookmark not defined. Exemption Reason Codes ......................................................................................4 Taxable and Exempt Transactions Samples..........................................................5

MS Excel .............................................................................................................5 Text Editor Format ..............................................................................................5

Source The following document outlines the data elements for taxable and exempt transaction records provided by a CPS for audit review. For more information on the SST CSP administration, please refer to Appendix F in the Rules and Procedures. This document can be found under the Rules and Bylaws on the Streamlined Sales Tax home page (click here).

Transaction Data Elements Field

Field Name

Description

Format

Length

1 Retailer SSTID Retailer’s SST ID Alpha/Numeric 9 2 Retailer Name Retailer’s business

name Alpha 40

3 Record Number Transaction ID / Identifying Number

Alpha/Numeric 10

4 Date of Transaction Date the tax was calculated

CCYYMMDD 8

5 Total Amount of Purchase Includes Exempt and Taxable Amounts


6 Total Taxable Amount Taxable Amount only Numeric 15 including 2 decimals

7 Total Tax Amount Sum of FIPS tax amounts 1 – 20


8 Description of Item Sold Provide SKU from State Exempt Sales Product matrix if applicable. Otherwise provide description from seller

Alpha 40

9 Ship to Address ** Street name and number

Alpha/Numeric 40

10 Ship to Suite ** Suite, P.O. Box, Apt, Lot Alpha/Numeric 40 11 Ship to City ** Name of city Alpha 40 12 Ship to State ** 2-digit abbreviation Alpha 2 13 Ship to Zip Code ** 9 character zip code Alpha/Numeric 9 14 Ship to Country ** 3 character country


15 State Where Exemption is Claimed

2- letter postal abbreviation

Alpha 2

16 Name of Purchaser Alpha 40 17 Type of Purchaser ID

Number Provide Enter ID type provided: Tax ID, FEIN, DLN or FDN

Alpha 6

18 Purchaser ID Number Enter number that corresponds to ID type selected in field 17

Alpha/Numeric 20

19 Purchaser Mailing Address Alpha 40 20 Purchaser City Alpha 40 21 Purchaser State 2-digit abbreviation Alpha 2

22 Purchaser Zip Code 9 character zip code Alpha/Numeric 9

23 Purchaser Country 3 character country abbreviation

Alpha 3

24 Purchaser Business Type Number

2-digit number Numeric 2

25 Purchaser Business Type Description

Must be completed if “20” is selected in field 24

Alpha 40

26 Purchaser Exemption Reason Code

Letter selected on exemption form

Alpha 1

27 Purchaser Exemption Reason Description

Provided on exemption form following code and standard description

Alpha 40

** Field will contain address information as to there the item was shipped. If purchased over-the-counter the information will be the address where the item was sold.

NOTE: If an exemption certificate is claimed, fields 15 through 27 should be completed using information from the Certificate of Exemption Business Codes Business Code

Description Business Code

Description

01 Accommodation and food services 11 Transportation and warehousing 02 Agricultural, forestry, fishing and

hunting 12 Utilities

03 Constructions 13 Wholesale trade 04 Finance and insurance 14 Business Services 05 Information, publishing, and

communications 15 Professional Services

06 Manufacturing 16 Education and health-care services

07 Mining 17 Nonprofit organization 08 Real estate 18 Government 09 Rental and leasing 19 Not a business 10 Retail Trade 20 Other

Exemption Reason Codes Reason Code

Description Reason Code

Description

A Federal government H Agricultural production B State or local government I Industrial production/

Manufacturing C Tribal government J Direct pay permit D Foreign diplomat K Multiple points of use (services,

digital goods or computer software delivered electronically)

E Charitable organization L Direct mail F Religious or educational

organization M Other

G Resale

Taxable and Exempt Transactions Samples The following sample is a representation of what the data will look like if opened using either MS Excel or text editor.

MS Excel S44334567 GIBERTS ON-LINE BOOKS T234567887 20070630 66.25 5.57 BOOKS 123 FIRST STREET OLYMPIA WA 98501 1234S29999981 INTERNATIONAL FOOD SUPPLIES T234567888 20070630 2765.47 0 41000 - PREPARED FOOD 8748 FRANSUITE B TACOMA WA 98401 3245S87484444 SAFE HARBOR MARINE T234567889 20070630 1899.99 152 BOAT SUPPLIES 146 LAKEMOORE DRSEATTLE WA 98101S34343424 FIT RITE SHOES T234567890 20070601 55.24 4.53 SANDLES 3678 BELLEVUE WA BELLEVUEWA 98005S12345678 BIG KAHUNA'S SURFBOARDS T234567891 20070601 999.99 86 SURFBOARD 8875 OCEAN VIEW RLONG BEAWA 98631S34377452 CAPITAL COMPUTERS T234567892 20070601 78.64 6.76 30040 - PREWRITTEN COMPUTER3456 3RD ASUITE J SEATTLE WA 98102 3446S90874556 WILLY WAX CANDLES AND SUPPLIES T234567893 20070601 8.99 0.76 WAX CANDLES 3567 EVERGREEN POLYMPIA WA 98504S76764421 SEATTLE IRON WORKS T234567894 20070601 15234.43 1310.16 6061 ALUMINUM ROUND STOCK 88974 OLYMPIC HWYGIG HARBWA 98329 3321S75356589 QUICK TIME PRINTING T234567895 20070601 486.35 37.94 STANDARD PRINTING 5554 PUGET ST. PORT TOWWA 98368 8223S34545546 OLYMPIA NUTS AND BOLTS T234567896 20070601 121.76 10.47 BOSCH CORDLESS 3/8 DRILL 8443 SIMPSON RD. KELSO WA 98626S35467885 SMITH'S FURNATURE T234567897 20070601 2899 249.31 SOFA & LOVE SEAT 2456 BAYSIDE DR. FRIDAY HAWA 98250S45346672 TACOMA MEDICAL SUPPLY T234567898 20070601 760.98 0 51100 84456 PORT WAY TACOMA WA 98401 4677 WA MARK BARNEY FEIN 74399716 84456 PORT WAY TACOMA WA 98401 4677 16 EDUCATION AND HEALTH-CARE SERVICES M OTHERS34545468 CLEARVIEW GLASS T234567899 20070602 150.45 11.74 WINDSHIELD 8556 WINCHESTER ROAKVILLEWA 98568S87873557 PUGET SOUND MOTORCYCLES T234567900 20070602 5425 466.55 REPAIRE - PARTS & LABOR 8994 BRIDGEPORT WBREMERTWA 98310S12323223 GIG HARBOR KITES T234567901 20070602 125 10.5 KITE 8553 LAMBERT ST. ILWACO WA 98624S64564559 FAST FREDDIES PERFORMANCE PARTS T234567902 20070602 598 51.43 FLOW MAX MUFFLERS 25628 SOUTH TACOMTACOMA WA 98402 3456S87687687 ORCAS ISLAND TRIBAL COUNSEL T234567903 20070602 10000 0 TRIBAL SERVICES RENDERED 2456 TOMOSHAN RDLUMMI ISLWA 98262 WA FRANK LITTLEJOHN 19 NOT A BUSINESS C TRIBAL GOVERNMENTS65456556 PACIFIC TIMBER SALES T234567904 20070602 23212.45 1988.44 LUMBER PACKAGE - K342346 9885 JOHNSON PT. ROLYMPIA WA 98506 2345 WA SAMATHA GARRISON FEIN 56789934 9885 JOHNSON PT. RD. OLYMPIA WA 98506 2345 3 CONSTRUCTION I INDUSTRIAL PRODUCTIONS01454355 ERT RETAILERS T234567905 20070602 3576.12 278.94 INFRARED SENSOR - PN9933 118 JACKSON ST. PUYALLUPWA 98371 4776S23434377 B&R VIDEO T234567906 20070602 1999.98 168 TOSHIBA 36LCDFP 7644 MOUNT SIDE R SPOKANEWA 99299 4556

Text Editor Format S44334567,GIBERTS ON-LINE BOOKS,T234567887,20070630,66.25,5.57,BOOKS,123 FIRST STREET,,OLYMPIA,WA,98501,1234,,,,,,,,,,,,, S29999981,INTERNATIONAL FOOD SUPPLIES,T234567888,20070630,2765.47,0,41000 - PREPARED FOOD,8748 FRANKIN WAY,SUITE B,TACOMA,WA,98401,3245,,,,,,,,,,,,, S87484444,SAFE HARBOR MARINE,T234567889,20070630,1899.99,152,BOAT SUPPLIES,146 LAKEMOORE DR.,,SEATTLE,WA,98101,,,,,,,,,,,,,, S34343424,FIT RITE SHOES,T234567890,20070601,55.24,4.53,SANDLES,3678 BELLEVUE WAY,,BELLEVUE,WA,98005,,,,,,,,,,,,,, S12345678,BIG KAHUNA'S SURFBOARDS,T234567891,20070601,999.99,86,SURFBOARD,8875 OCEAN VIEW RD.,,LONG BEACH,WA,98631,,,,,,,,,,,,,, S34377452,CAPITAL COMPUTERS,T234567892,20070601,78.64,6.76,30040 - PREWRITTEN COMPUTERE SOFTWARE,3456 3RD AVE,SUITE J,SEATTLE,WA,98102,3446,,,,,,,,,,,,, S90874556,WILLY WAX CANDLES AND SUPPLIES,T234567893,20070601,8.99,0.76,WAX CANDLES,3567 EVERGREEN PARKWAY,,OLYMPIA,WA,98504,,,,,,,,,,,,,, S76764421,SEATTLE IRON WORKS,T234567894,20070601,15234.43,1310.16,6061 ALUMINUM ROUND STOCK 4 INCH,88974 OLYMPIC HWY,,GIG HARBOR,WA,98329,3321,,,,,,,,,,,,, S75356589,QUICK TIME PRINTING,T234567895,20070601,486.35,37.94,STANDARD PRINTING,5554 PUGET ST.,,PORT TOWNSEND,WA,98368,8223,,,,,,,,,,,,, S34545546,OLYMPIA NUTS AND BOLTS,T234567896,20070601,121.76,10.47,BOSCH CORDLESS 3/8 DRILL,8443 SIMPSON RD.,,KELSO,WA,98626,,,,,,,,,,,,,, S35467885,SMITH'S FURNATURE,T234567897,20070601,2899,249.31,SOFA & LOVE SEAT,2456 BAYSIDE DR.,,FRIDAY HARBOR,WA,98250,,,,,,,,,,,,,, S45346672,TACOMA MEDICAL SUPPLY,T234567898,20070601,760.98,0,51100,84456 PORT WAY,,TACOMA,WA,98401,4677,WA,MARK BARNEY,FEIN,74399716,84456 PORT WAY,TACOMA,WA,98401,4677,16,EDUCATION AND HEALTH-CARE SERVICES,M,OTHER S34545468,CLEARVIEW GLASS,T234567899,20070602,150.45,11.74,WINDSHIELD,8556 WINCHESTER RD.,,OAKVILLE,WA,98568,,,,,,,,,,,,,, S87873557,PUGET SOUND MOTORCYCLES,T234567900,20070602,5425,466.55,REPAIRE - PARTS & LABOR,8994 BRIDGEPORT WAY,,BREMERTON,WA,98310,,,,,,,,,,,,,, S12323223,GIG HARBOR KITES,T234567901,20070602,125,10.5,KITE,8553 LAMBERT ST.,,ILWACO,WA,98624,,,,,,,,,,,,,, S64564559,FAST FREDDIES PERFORMANCE PARTS,T234567902,20070602,598,51.43,FLOW MAX MUFFLERS,25628 SOUTH TACOMA WAY,,TACOMA,WA,98402,3456,,,,,,,,,,,,, S87687687,ORCAS ISLAND TRIBAL COUNSEL,T234567903,20070602,10000,0,TRIBAL SERVICES RENDERED,2456 TOMOSHAN RD.,,LUMMI ISLAND,WA,98262,,WA,FRANK LITTLEJOHN,,,,,,,,19,NOT A BUSINESS,C,TRIBAL GOVERNMENT S65456556,PACIFIC TIMBER SALES,T234567904,20070602,23212.45,1988.44,LUMBER PACKAGE - K342346,9885 JOHNSON PT. RD.,,OLYMPIA,WA,98506,2345,WA,SAMATHA GARRISON,FEIN,56789934,9885 JOHNSON PT. RD.,OLYMPIA,WA,98506,2345,3,CONSTRUCTION,I,INDUSTRIAL PRODUCTION S01454355,ERT RETAILERS,T234567905,20070602,3576.12,278.94,INFRARED SENSOR - PN9933,118 JACKSON ST.,,PUYALLUP,WA,98371,4776,,,,,,,,,,,,, S23434377,B&R VIDEO,T234567906,20070602,1999.98,168,TOSHIBA 36LCDFP,7644 MOUNT SIDE RD.,,SPOKANE,WA,99299,4556,,,,,,,,,,,,,

07/12/07 – July ’07 Training Presentation Version

Page 1 of 3

Timeline for the 2007/2008 CSP Compliance Audits

PERIOD TASK 07/15/07 through 08/27/07

Between July 15, 2007 and August 1, 2007, the Audit Core Team will request that the CSPs:

1.) Supply a listing of Model 1 Sellers they have preformed CSP services for during the audit period, along with the date they started performing services for each Model 1 seller. The CSPs will also be requested to supply a listing of the states that each Model 1 Seller holds volunteer status in.

2.) Prepare downloads of sales transaction information, exemption

information, and tax collection/remittance information on each model 1 seller split by member and/or associate member state. This information will be for the state auditors’ use in their tax compliance audits.

3.) Prepare downloads of data as specifically requested by the Audit

Core Team for use in completing the audit responsibilities outline in rule 806.3.4(D)(2).

Between July 15, 2007 and August 1, 2007, The Audit Core Team will submit questionnaires to the CSPs, member states, and the Office of Executive Director. All questionnaires must be returned to the Audit Core Team by the end of business on Friday, August 17, 2007. By the end of business on Friday, August 24, 2007, the CSPs must place on the Core Audit Team’s FTP site the data downloads specifically requested by the Audit Core Team.

08/28/07 through 08/31/07

The Audit Core Team will meet in St. Paul, Minnesota to review the completed questionnaires, go over data downloads, and finalize the CSP field work plans. An all day meeting is scheduled for Tuesday, August 28, 2007 and a half day meeting is planned for the morning of Friday, August 31, 2007.


Page 2 of 3

PERIOD TASK

09/01/07 through 10/15/06

The Audit Core Team will complete field work at the CSPs location (it is important that during this time frame the Audit Core Team complete all field work in areas that could lead to an audit adjustment by any member/ associate member state). By October 1, 2007, the CSPs must place on each member state’s or associate member state’s FTP site the state specific sales transaction information, exemption information, and tax collection/remittance information for each model 1 seller they performed CSP services for. By October 15, 2007, The Audit Core Team will prepare preliminary reports that will be forwarded to the member states and associate member states detailing work completed in potential audit adjustment areas.

10/16/07 through 12/15/07

During this period of time, the Audit Core Team can continue to work on and finalize the contract compliance portion of CSP audits. The member and associate member states will review the model 1 sellers’ records and prepare reports that notify the Audit Core Team of their findings. The member and associate member states’ preliminary feedback reports must be forwarded to the Audit Core Team by the end of business on Friday, December 14, 2007.

12/15/07 through 01/15/08

The Audit Core Team will compile a report on the initial findings of the contract compliance audit and the member/associate member states’ tax compliance audits and submit the report to the CSP. Each CSP compliance audit initial findings must be forwarded to the respective CSP by the end of business on Tuesday, January 15, 2008.

The Audit Core Team may meet in Nashville, Tennessee for few days around December 17, 2007 to compile the findings from all audit areas and meet again for a few days during the week January 8, 2008 to finalize the initial report to be forwarded to the CSPs


Page 3 of 3

PERIOD TASK

01/16/08 through 02/15/08

The CSP will review and comment on the preliminary findings of the compliance audit. Comments will be sent to the Audit Core Team and member/associate member states. Conference calls and/or meetings to formally discuss the preliminary findings with the CSPs can be conducted on Wednesday, January 16, 2008 through Friday, January 18, 2008 or Monday, January 21, 2008 through Wednesday, January 23, 2008. Conference calls and/or meetings to discuss the CSPs comments after final review will be scheduled during the week of February 11, 2008. Final comments to the Audit Core Team from the CSPs must be forwarded to the Core Team by the end business on Friday, February 15, 2008. Preferred method of delivery is electronic.

02/16/08 through 02/29/08

The Audit Core Team and member/ associate member states can amend their findings, if necessary. The Audit Core Team will prepare the final contract compliance audit reports to be sent to the Executive Director.

The Audit Core Team may meet in Nashville, Tennessee during the week of February 25, 2008 to complete the final contract compliance audit reports.

03/01/08 The final contract compliance audit reports on each CSP will be forwarded to the Executive Director on March 1, 2008.

STATE REPRESENTATIVE QUESTIONNAIRE FOR CONTRACTOR: ________________________________

CONTRACT PERIOD: _______________________________________

STATE: ___________________________________________________

STATE REPRESENTATIVE NAME/PHONE NUMBER: ___________________________________________________

ALTERNATE CONTACT NAME AND PHONE NUMBER: _________________________________________________

(Please return no later than: / / 2007)

Contract Section

Questions (Please answer the following questions in relation to the referenced sections of the CSP contract)

Yes No Explanation B.1 [Q#1] Did your revenue agency note any instances where the above noted

Contractor did not perform all of the sales and use tax functions of each Seller for whom it had Contracted as a CSP, other than such Seller’s obligation to remit tax on its own purchases? If so, please describe the problems and be as specific as possible.

B.1 [Q#2] Did your revenue agency note any instances where the Contractor didnot comply with the requirement that within ten (10) business days after agreeing with the Seller not to provide the CSP services, the Contractor notified each affected Member State and Associate Member State that it was not providing CSP services on behalf of that Seller? If so, please describe the problem(s) and be as specific as possible.

B.2 Were there any instances where the above noted Contractor failed to adhere to the laws of your State or any other agreement as noted in Section B.2 of the CSP Contract, or the contract itself? If so, describe the issues or problems, being specific as possible.

B.3.c [Q#1] Were all tax returns and informational reports filed timely and completely as provided for in Section 318 of the SSUTA for each Seller contracted with them and registered with your State? If not, please provide a few instances where Contractor did not, and please explain, providing any documentation to this effect.

revised 06/25/07

Contract Section


Yes No Explanation

B.3.c [Q#2] Did the above mentioned Contractor remit the taxes of each Seller timely and in the manner specified by the Governing Board to your state? If not, please provide a listing where the Contractor did not. Please explain, providing any documentation to this effect.

D.1 Were there any instances where your State determined errors in compensation?

D.10 [Q#1] Were any compensation fees refunded to your State with regard to any Volunteer Seller who lost their status? If so, please detail the circumstances when this took place.

D.10 [Q#2] With regard to any Volunteer Seller who lost their status as a result of activities it conducted in your State after entering into its first Contract with the above mentioned Contractor, has the Contractor continued to receive compensation for processing sales and use taxes for your State? If so, has it gone longer than 24 months after the date on which the first CSP began remitting Taxes due for that Seller to your State? If so, please provide details.

D.12 In accordance with Contract Section D.12., did your State accept any alternative compensation formula to the one set forth in Section D, and as dictated and adopted by the Governing Board? If so, please provide instances.

D.13 Did your State receive a quarterly compensation calculation report from the Office of Executive Director that explained the calculation of compensation charged your state?

D.14 If you are a new state, are you getting the services specified in the Contract?

E.1 Did the CSP remit all sales and use taxes to your State when due? If no, please explain any late payments.

revised 06/25/07

Contract Section


Yes No Explanation

E.2 Did the CSP notify your State of any non remittance by a seller of sales and use taxes due to your State? If yes, please explain and provide a list of notifications you have received.

E.3 [Q#01] Has your State sent any notices to the CSP (i.e., through Testing Central) to revise their Automated System to conform with changes in any rates, boundaries, taxing jurisdictions, your taxability matrix, or the classification of the taxability of a category of items or transactions? If yes, please explain and provide a list of notifications you have sent.

E.3 [Q#02] Did the CSP perform your State's change requests (if any) within the 10-day period as required by the contract? If no, please list any non compliance.

E.15 Has your State become aware of any instances where the CSP did notcomply with all laws, ordinances, codes, rules, regulations, and licensing requirements that are applicable to the conduct of its business, including those of federal, state, and local agencies having jurisdiction and/or authority? If yes, please provide a written explanation and copies of any documentation.

E.31 Has your State had any complaints from a customer or taxpayer or received evidence of a CSP representing themselves as preferred or favored by a State or the Governing Board? If yes, please explain.

General Please add any other information not specifically asked for in this questionnaire that you feel would be of help to the SST Governing Board Core Team during their audit work. Please describe.

------- -------

revised 06/25/07

STATE: _______________________________________________Report Contact (Name, Title, E-Mail, Phone #): ___________________________________________________________

Date Completed: ______________

Please indicate the following for all Model 1 Sellers Registered with your State for the period of _________ to ____________

MAIN PAGETax Compliance Audit of CSP for Model 1 Sellers

CSP 1 1 1 yes Example

CSP 2 275 25 yes Example

Errors found? If yes, COMPLETE AN AUDIT REPORT PAGE

Number of Volunteer Sellers Registered and actually remitting

tax to your StateCSPHow Many Sellers Did your

State elect to audit?

Return To: Audit Core Team FTP SiteReport Due: FRIDAY - DECEMBER 14, 2007 Page 1 of 5

STATE: _______________________________________________Report Contact (Name, Title, E-Mail, Phone #): ___________________________________________________________________

Date Completed: ______________

Gen

eric

Exp

ande

d

CSP1 sell1 7/1/2006 6/30/2007 12/31/2007 yes Taxing X X XEXAMPLE - Changes posted through Testing Central not implemented timely

CSP1 sell1 7/1/2006 6/30/2007 12/31/2007 yes Remitting X X EXAMPLE - 3 payments not remitted timely

CSP1 sell1 7/1/2006 6/30/2007 12/31/2007 yes Taxing X XEXAMPLE - Calculation approved during certification was actually incorrect

CSP1 sell1 7/1/2006 6/30/2007 12/31/2007 no Taxing XEXAMPLE - Contacted Core Team for information

CSP 2 sell2 7/1/2005 6/30/2007 yes Taxing X X EXAMPLE - Seller override of CSP system

CSP 2 sell3 7/1/2006 6/30/2007 yes Taxing X X EXAMPLE - State provided database incorrect

CSP

AUDIT REPORT PAGE

Error in Taxing, Reporting, or Remitting

Taxability matrix

mapping

Sou

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Tax

not r

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List seller if your state

statute allows,

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Tax Compliance Audit of CSP for Model 1 Sellers

Beginning Audit

Period Date R

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Cause of error not noted elsewhere or Additional information to communicate to Core Team

Who is liable for

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Ending Audit Period Date

Is this audit complete? If not, expected completion date

Was your State provided all information necessary to complete the audit? O

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Please indicate the cause of this error

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CSP

Error in Taxing, Reporting, or Remitting

Taxability matrix

mapping

Sou

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Tax

not r

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List seller if your state

statute allows,

otherwise list by alias - sell1, sell2, sell3, etc.

Beginning Audit

Period Date R

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n(s)

not

file

d tim

ely

Cause of error not noted elsewhere or Additional information to communicate to Core Team

Who is liable for

this error?

CSP

SE

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STAT

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Ending Audit Period Date

Is this audit complete? If not, expected completion date

Was your State provided all information necessary to complete the audit? O

ther

Please indicate the cause of this error

Cha

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CSP 2 ALL SELLER 7/1/2006 6/30/2007 yes Taxing X X EXAMPLE - Matrix coded incorrectly



Page 1 of 14

CSP/Model 1 Sellers – Who, What, Where and When:

AUDIT CORE TEAM STATE AUDITORS • Per Rule 806.3.4(B)

o The Audit Core Team will report to the Streamlined Sales Tax Governing Board Executive Director or its designee for audit assignments, guidance and support.

The Core Team reports to Scott Peterson, Governing Board Executive Director, but Mr. Peterson has designated a small advisory group consisting of Bruce Christensen and Cathy Wicks for audit guidance and support.

• Per Rule 806.3.4(D)(1):

o The Audit Core Team is responsible for performing contract compliance audits and coordinating tax compliance audits with member states.

Each State will pick the Model 1 Sellers’ transactions they want to review.

The Core Team may want to request that the States review a few specific Model 1 Sellers’ transactions across the board. So that, 1) within the contract compliance portion of the audits a level of CSP and Seller compliance (non-compliance) can be documented throughout all SST States or 2) the Core Team has identified a problem that needs to be examined further at the state level .

AUDIT CORE TEAM STATE AUDITORS

Page 2 of 14

• Per Rule 806.3.4(D)(2)(a):

o Determine the CSP’s level of compliance with the terms of the SST Governing Board CSP contract. (Questionnaires and specific tests will be used to assess the CSP’s contract compliance.)

Questionnaires will be given to the CSPs, Member/Associate Member States and the Office of Executive Director to help evaluate the CSPs compliance with their contract.

Contract compliance attributes have been established along with accompanying compliance audit procedures. The compliance audit procedures will be completed to evaluate the compliance attribute.

The Audit Core Team needs to review each compliance audit procedure and decide the following; 1) specifically define the tasks to be accomplished, 2) decide on what records may need to be reviewed, and 3) decide if the procedure outlined goes far enough or too far.

Once the above is completed specific plans to carry out each compliance audit procedure needs to be established.


Page 3 of 14

• Per Rule 806.3.4(D)(2)(b):

o Verify that compensation was calculated properly for all volunteer sellers.

The Core Team has not definitively concluded the audit plans necessary to accomplish this task (such as type of sample, size of sample, etc.).

o Verify that compensation was calculated properly for all volunteer sellers.

The State Auditors may need to address errors discovered by the Core Team.

• Per Rule 806.3.4(D)(2)(c):

o Verify that appropriate procedures for mapping exist, are in conformance with the mapping requirements, and are followed in the initial mapping setup, as well as during updates and corrections to mapping.

Mapping to the generic taxability matrix categories will be reviewed at the Core Team level.

Generic taxability matrix categories should be the same for all states and defined within the SST Agreement.


o Verify that appropriate procedures for mapping exist, are in conformance with the mapping requirements, and are followed in the initial mapping setup, as well as during updates and corrections to mapping.

The State Auditors will need to look at their states expanded taxability matrix (if their state has one).



Page 4 of 14

• Per Rule 806.3.4(D)(2)(d):

o Verify that the appropriate entity use

exemption data elements are captured by the CSP system.


Additional thought needs to be put into how this is to be completed.

In the Issue Paper on Simplified Exemption Administration Process (Approved on April 16, 2005) it states “Rules and administrative practices will be established for joint state auditing of exempt transactions”.

The Core Team can not be responsible for auditing whether a purchaser is claiming a proper exemption; it can only be responsible for whether the proper data elements are captured.

If the Core Team documents missing data elements, does the Core Team request that the CSP obtain the missing elements or should this request come from the State Auditors?

o Verify that the appropriate entity use

exemption data elements are captured by the CSP system.

The State Auditors may also need to audit exemption data elements.


The State Auditors will be responsible for auditing whether a purchaser is claiming a proper exemption.

• Per Rule 806.3.4(D)(2)(e):

o Verify that all tax collected was remitted timely to the appropriate tax authority.


o Verify that all tax collected was remitted timely to the appropriate tax authority.

The State Auditors will need to verify if taxes were received in their state.



Page 5 of 14

• Per Rule 806.3.4(D)(2)(f):

o Verify that sales were accurately reported by the CSP/Seller on simplified electronic returns (SERs).


o Verify that sales were accurately reported

by the CSP/Seller on simplified electronic returns (SERs).

The State Auditors will need to verify that sales were properly reported on their state’s SERs.


• Per Rule 806.3.4(D)(2)(g):

o Acquire a list of sellers represented by each CSP and provide this information to the Streamline Sales Tax Governing Board member states.

This will be requested in the Core Team’s first request for information from the CSPs.

• Per Rule 806.3.4(D)(2)(h):

o Coordinate with state auditors a download of all sales processed by the CSP for each seller, which will be available through access to a FTP site maintained by the SSTGB, Inc. to receive electronic records.

This will be requested in the Core Team’s first request for information from the CSPs.

The Core Team will need to follow-up to make sure each state receives the appropriate downloads through the FTP sites.

• Per Rule 806.3.4(D)(2)(i):

o Create a uniform audit plan with a timeline to establish the projected dates that various audit steps should be completed.

A Timeline as been established for the current CSP Compliance Audits.


Page 6 of 14

• Per Rule 806.3.4(D)(2)(j):

o Compile the feedback reports from the member states, summarize the findings and report to the Executive Director of the Streamlined Sales Tax Governing Board. The summaries must comply with confidentiality restrictions that apply to the SST Governing Board regarding disclosure.

The format of the State Audit Feedback Reports has been established by the SST Audit Committee.

Format for submitting the Core Team’s contract compliance audit to the Executive Director has not been finalized.

• Per Rule 806.3.5.1

o There should be no direct communication with Model 1 sellers by member states, except in response to questions from Model 1 sellers, in case of suspected fraud or to obtain information that the CSP cannot provide.

It is preferred that the State auditors work through the Core Team on questions to be directed to the CSPs about their Model 1 Sellers (if their state’s confidentiality laws will allow this).

• Per rule 806.3.5.2

o The timeline for conducting the compliance audit will vary from year to year. The Audit Core Team will establish a timeline for each audit.

A Timeline as been established for the current CSP Compliance Audits.

• Per rule 806.3.5.2

o The timeline for conducting the compliance audit will vary from year to year. The Audit Core Team will establish a timeline for each audit.

The States will be required to adhere to the timeline setout by the Core Team.


Page 7 of 14

• Per rule 806.3.5.2

o The Audit Core Team will have 30 days to compile a report on the preliminary findings of the contract compliance audit and the member states’ tax compliance audits and submit the report to the CSP.

The format of this report has not been finalized.

• Per rule 806.3.5.2

o The CSP will have 30 days to review and comment on the preliminary findings of the compliance audit. Comments will be sent to the Audit Core Team and member states.

The rule states the CSP will have 30 days to review and comment.

It will be important that the CSP completes its review and comment process within this 30 day window. This would include any meetings (over telephone or face to face) with either the Core Team and/or State Auditors.

In light of the fact that the Core Team is coordinating the tax compliance audits of the Model 1 Sellers, the Core Team may be asked by either the CSP or a State Auditor to be a party to conversations and/or meetings between the CSP and the State Auditor (if the state’s confidentiality laws will allow this).

• Per rule 806.3.5.2

o The CSP will have 30 days to review and comment on the preliminary findings of the compliance audit. Comments will be sent to the Audit Core Team and member states.

The rule states the CSP will have 30 days to review and comment.

It will be important that the CSP completes its review and comment process within this 30 day window. This would include any meetings (over telephone or face to face) with either the Core Team and/or State Auditors.

In light of the fact that the Core Team is coordinating the tax compliance audits of the Model 1 Sellers, the Core Team may be asked by either the CSP or a State Auditor to be a party to conversations and/or meetings between the CSP and the State Auditor (if the state’s confidentiality laws will allow this).


Page 8 of 14

• Per rule 806.3.5.2

o The Audit Core Team and member states will have 10 days to amend their findings if necessary before final report is sent to the Executive Director.

After the CSP review, the Core Team and the member states will have 10 days to amend their reports. The Core Team will then submit their final reports to the Executive Director.

If changes are necessary, the member states and Core Team will need to effectively communicate in order to meet the quick turnaround deadline.

• Per rule 806.3.5.2

o The Audit Core Team and member states will have 10 days to amend their findings if necessary before final report is sent to the Executive Director.

After the CSP review, the Core Team and the member states will have 10 days to amend their reports. The Core Team will then submit their final reports to the Executive Director.

If changes are necessary the member states and Core Team will need to effectively communicate in order to meet the quick turnaround deadline.

• Per rule 806.3.5.3(A)

o The Audit Core Team will provide each member state with its findings of the contract compliance audit.

The Core Team should provide the member states two reports of findings. A preliminary findings report documenting any areas where a potential state audit adjustment may exist. The Core Team will attempt to forward the preliminary findings to the states prior to the start of the state transactions’ audits. A final contract compliance audit will be supplied to the member states following its completion.


Page 9 of 14

• Per rule 806.3.5.3(B)

o Member states will incorporate the findings

of the contract compliance audit into their state’s audit report for the tax compliance audit so the CSP receives only one audit report per state. (For example, if the Audit Core Team finds that a CSP has withheld more compensation that they should, the assessment for that additional tax will be combined with the assessments, if any, for underreporting by the CSP’s model 1 sellers.)

The Core Team will provide the member states two reports of findings. A preliminary findings report documenting any areas where a potential state audit adjustment may exist. The Core Team will attempt to forward the preliminary findings to the states prior to the start of the state transactions’ audits. A final contract compliance audit will be supplied to the member states following its completion

• Per rule 806.3.5.3(C)

o The feedback report on the audit findings that goes to the Executive Director will contain general information on errors found and will not contain specific taxpayer information to ensure the confidentiality of taxpayer information.

The format of this report has not been finalized.


Page 10 of 14

• Per Rule 806.3.5.5(A)

o Each Streamline Sales Tax Governing

Board member state’s designated auditor(s) will handle its state’s portion of the audit and is responsible to ensure conformance to the audit plan and timeline, according to each state’s audit policies and procedures.

The various state auditors and/or audits will need to be in conformance with the Core Team’s audit plan and time table.

• Per Rule 806.3.5.5(B)

o The Audit Core Team will provide the CSP with a list of the member states’ auditors who will be involved in the compliance audit process.

This information will be obtained and forwarded to CSP early in the audit process.


Page 11 of 14

• Per Rule 806.3.5.5(C)

o Each CSP will provide a list of all sellers and the date each seller began processing transactions using its service to the Audit Core Team for distribution to the member states. Each member state will decide which Model I sellers’ transactions to include in their tax compliance audit. The state auditors will have access to a FTP site maintained by the SSTGB, Inc. to receive electronic records. Each member state has the option to comprehensively review the electronic records or choose sampling methodology to perform the review of the transactions processed.

Supply the states with a listing of sellers to include the date the CSP started processing transaction for each seller.

The Core Team will need to follow-up to make sure each state receives the appropriate downloads through the FTP sites.

Core Team may want to request the states to audit a few specific sellers.

• Per Rule 806.3.5.5(C)

o Each CSP will provide a list of all sellers and the date each seller began processing transactions using its service to the Audit Core Team for distribution to the member states. Each member state will decide which Model I sellers’ transactions to include in their tax compliance audit. The state auditors will have access to a FTP site maintained by the SSTGB, Inc. to receive electronic records. Each member state has the option to comprehensively review the electronic records or choose sampling methodology to perform the review of the transactions processed.

The States will receive complete state specific transaction downloads for every model 1 seller’s transactions sourced to their state. These downloads will be provided to the states through an FTP site.

From the transactions downloads each state will decide which Model 1 Sellers’ transactions they want to audit.

On a seller by seller basis, a decision whether to complete a comprehensive review or choose a sampling methodology will need to be decided.


Page 12 of 14

• Per Rule 806.3.5.5(D)(1)-(8)

o Member state auditors would be responsible

for reviewing the seller’s transactions to determine if they were taxed correctly. If errors exist the auditors must determine if the errors were caused by any of the following reasons including but not limited to: 1.) Deviation from the state’s rates and boundaries tables; 2.) Noncompliance with the state’s taxability matrix; 3.) Non-compliance with state approved expanded matrix; 4.) Changes posted through Testing Central were not implemented in a timely manner (10 days); (This will be verified through the CORE Team); 5.) Seller overrides of the CSP system; 6.) Exemption information and/or certificates did not contain all of the required data elements; 7.) Calculations that were tested and approved during the certification process; 8.) Errors in computing tax based on erroneous information from the states.

State Audits are to review the sellers’ transactions and determine whether the transactions are taxed correctly. If errors exist, then the state auditors are to determine if the cause of the error is one of the eight items listed above or a ninth miscellaneous reason.

If exemption information does not contain all the required data elements, the state auditor must give the seller 120 days to obtain the information.


Page 13 of 14

• Per Rule 806.3.5.5(E)

o Prior to the issuance of an audit adjustment, the CSP will be given an opportunity to review the audit results with the auditor(s) from each state wherein a tax liability exists in accordance with its laws, rules and regulations.

Since the Core Team is coordinating the tax compliance audits of the Model 1 Sellers, the Core Team may be asked by either the CSP or a State Auditor to be a party to conversations and/or meetings between the CSP and the State Auditor (if the state’s confidentiality laws will allow this).

• Per Rule 806.3.5.5(E)

o Prior to the issuance of an audit adjustment, the CSP will be given an opportunity to review the audit results with the auditor(s) from each state wherein a tax liability exists in accordance with its laws, rules and regulations.

Since the Core Team is coordinating the tax compliance audits of the Model 1 Sellers, the Core Team may be asked by either the CSP or a State Auditor to be a party to conversations and/or meetings between the CSP and the State Auditor (if the state’s confidentiality laws will allow this).

It will be at the discretion the Member and Associate Member States as to when they finalize their state’s tax compliance audits. The Audit Committee of the Streamlined Sales Tax Governing Board would encourage the Member and Associate Member States to finish these audits in an efficient and professional manner.


Page 14 of 14

• Per Rule 806.3.5.5(H)

o Where audit findings indicate there is an

outstanding tax liability owed by the CSP, any resulting deficiencies or demand for payment of additional taxes under the terms of the contract will be generated by each member state. Accordingly, the laws of each state regarding the appeal process and statute of limitations would apply to the audit adjustments.

The Member and Associate Member States will individually process any liabilities and/or refunds resulting from the tax compliance audits. The ultimate outcome of these audits will not be reported to the Governing Board or the Executive Director.

Streamlined Sales and Use Tax Agreement Certificate of Exemption This is a multistate form. Not all states allow all exemptions listed on this form. Purchasers are responsible for knowing if they qualify to claim exemption from tax in the state that would otherwise be due tax on this sale. The seller may be required to provide this exemption certificate (or the data elements required on the form) to a state that would otherwise be due tax on this sale. The purchaser will be held liable for any tax and interest, and possibly civil and criminal penalties imposed by the member state, if the purchaser is not eligible to claim this exemption. A seller may not accept a certificate of exemption for an entity-based exemption on a sale made at a location operated by the seller within the designated state if the state does not allow such an entity-based exemption. 1. Check if you are attaching the Multistate Supplemental form. If not, enter the two-letter postal abbreviation for the state under whose laws you are claiming exemption. 2. Check if this certificate is for a single purchase and enter the related invoice/purchase order #________________________________. 3. Please print___________________________________________________________________________________________

Name of purchaser __________________________________________________________________________________________________________________ Business Address City State Zip Code Purchaser’s Tax ID Number State of Issue Country of Issue __________________________________________________________________________________________________________________ If no Tax ID Number | FEIN | Driver’s License Number/State Issued ID Number | Foreign diplomat number Enter one of the following: | | | ______________________|__________________ |_State of Issue: Number____________________________|_____________________ Name of seller from whom you are purchasing, leasing or renting _________________________________________________________________________________________ Seller’s address City State Zip code _________________________________________________________________________________________

4. Type of business. Circle the number that describes your business

01 Accommodation and food services 11 Transportation and warehousing 02 Agricultural, forestry, fishing, hunting 12 Utilities 03 Construction 13 Wholesale trade 04 Finance and insurance 14 Business services 05 Information, publishing and communications 15 Professional services 06 Manufacturing 16 Education and health-care services 07 Mining 17 Nonprofit organization 08 Real estate 18 Government 09 Rental and leasing 19 Not a business 10 Retail trade 20 Other (explain)__________________________

5. Reason for exemption. Circle the letter that identifies the reason for the exemption.

A Federal government (department)_________________ H Agricultural production #_____________________ B State or local government (name)_________________ I Industrial production/manufacturing #___________ C Tribal government (name)_______________________ J Direct pay permit #__________________________ D Foreign diplomat # ____________________________ K Direct mail #_______________________________ E Charitable organization #________________________ L Other (explain)______________________________ F Religious or educational organization #_____________ G Resale #_____________________________________

6. Sign here. I declare that the information on this certificate is correct and complete to the best of my knowledge and belief. Signature of Authorized Purchaser Print Name Here Title Date __________________________________________________________________________________________________________________ SSTGB Form F0003 Exemption Certificate (1/15/07)

Streamlined Sales and Use Tax Agreement Certificate of Exemption Mutistate Supplemental Name of Purchaser

STATE Reason for Exemption Identification Number (If Required)

AR* IA IN KS KY MI MN NC ND NE NJ NV OH OK RI SD

TN* UT VT WV WY

SSUTA Direct Mail provisions are not in effect for Arkansas and Tennessee. The following nonmember states will accept this certificate for exemption claims that are valid in their respective state. SSUTA Direct Mail provisions do not apply in these states.

XX XX XX XX XX XX XX XX XX XX XX XX XX XX

SSTGB Form F0003 Exemption Certificate (1/15/07)

SST Audit – Contact List Scott Peterson, Executive Director, SST Governing Board, Inc. [email protected] (615) 460-9330 David Thompson, Information Technology Director, SST Governing Board, Inc. [email protected] (931) 387-2280 Core Team Members: Steve Krovitz [email protected] (651) 556-6017 Minnesota Department of Revenue Bob Muller [email protected] (765) 289-6196 Indiana Department of Revenue Roger Wright [email protected] (304) 558-8523 West Virginia Department of Revenue Tonette (Toni) Webster [email protected] (405) 317-3228 Oklahoma Tax Commission Other Contacts: Bruce Christensen [email protected] (605) 773-3311 South Dakota Department of Revenue & Regulation – Chairman SST Audit Committee J.R. Sherman [email protected] (307) 777-5314 Wyoming Department of Audit Scott Elliot [email protected] (509) 327-0270 Washington Department of Revenue

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